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UNAUTHORIZED PRACTICE OF LAW
IN NORTH CAROLINA AND THE CREATION OF A
NEW CONSUMER PROTECTION TRADE
ASSOCIATION TO ADVOCATE FOR THE INTERESTS
OF NORTH CAROLINA CITIZENS
I. What is the Unauthorized Practice of Law?
North Carolina, like most states, has an unauthorized practice of law statute, which
provides:
“[I]t shall be unlawful for any person or association of persons, except active members of
the Bar of the State of North Carolina admitted and licensed to practice as attorneys-at-
law, to appear as attorney or counselor at law in any action or proceeding before any
judicial body, including the North Carolina Industrial Commission, or the Utilities
Commission; ... to maintain, conduct or defend the same,... or, by word, sign, letter or
advertisement, to hold out himself, or themselves, as competent or qualified to give legal
advice or counsel, or to prepare legal documents, or as being engaged in advising or
counseling in law or acting as attorney or counselor-at-law, or in furnishing the services
of a lawyer or lawyers and it shall be unlawful [for any such unlicensed person] to give
legal advice or counsel, perform for or furnish to another legal services, or to prepare
directly or through another person, firm or corporation any will or testamentary
disposition, or instrument of trust, or to organize any corporations or prepare for another
person, firm or corporation, any other legal document.”
N.C. Gen. Stat. § 84-4 (2005). Pursuant to N.C.G.S. 84-2.1, the definition of what constitutes
the "practice of law" in North Carolina includes:
1. The preparation or aiding the preparation of deeds, mortgages, wills, trust
instruments, legal documents, and contracts by which legal rights are secured;
2. Preparing or aiding the preparation of any petitions or orders in any probate or
court proceeding;
3. Abstracting or passing on titles,
4. The preparation and filing of petitions for use in any court, including
administrative tribunals and other judicial and quasi-judicial bodies; or
5. By assisting by advice, counsel or otherwise in any legal work. N.C.G.S. 84-2.1.
N.C.G.S. § 84-2.1. Further, the North Carolina Supreme Court has also outlined the extent and
definition of what constitutes the “practice of law” as follows:
2
“In recent years the courts have been frequently called upon to determine what
constitutes practicing law. Probably the definition more often quoted with approval is
found in In re Duncan, 83 S.C. 186, 65 S.E. 210, as follows: "According to the generally
understood definition of the practice of law in this country, it embraces . . .
conveyancing, the preparation of legal instruments of all kinds, and, in general, all
advice to clients, and all action taken for them in matters connected with the law."
Seawell v. Carolina Motor Club, Inc., 209 N.C. 624, 184 S.E. 540 (1936). The term
“conveyancing” is generally defined by Black’s law dictionary as “the transfer of title of
property from one person to another, or the granting of an encumbrance such as a mortgage or a
lien.” Black's Law Dictionary (7th ed. 1999). In general, one who is handling or managing the
process of closing the sale and purchase of real estate in North Carolina is engaged in
conveyancing, which according to the North Carolina Supreme Court is the practice of law
reserved to licensed attorneys under Chapter 84. See Id.
The purpose of UPL statutes in North Carolina is for the protection of the general welfare
of the public against incompetence and dishonesty. See Pledger, 257 N.C. 257 at 636, 127
S.E.2d at 339. These laws help “to protect the public from severe economic and emotional
consequences which may flow from erroneous advice given by persons untrained in the law.”
See Joyce Palomar, The War Between Attorney and Lay Conveyancers-- Empirical Evidence
Says “Cease Fire!”, 31 Conn. L. Rev. 423, 432-37 (1999) (discussing the disputes involving
UPL and lay real estate settlement service providers). In North Carolina, the power to police
UPL has been statutorily granted to the judiciary with investigation and inquiry powers granted
to the North Carolina State Bar. N.C. Gen. Stat. §§ 84-4, 84-7, 84-8 and 84-37; see also
Gardener v. N.C. State Bar, 316 N.C. 285, 288, 341 S.E.2d 517, 519 (1986).
To constitute the unauthorized practice of law it is necessary that the person charged with
such a violation of the law shall have, at a minimum, held himself out to the public as a lawyer.
State v. Bryan, 98 N.C. 644, 4 S.E. 522 (1887).
Of course, there are limited circumstances where persons not licensed by the North
Carolina State Bar may perform legal services and thus practice law on behalf of a third party.
There are two specific exceptions allowing persons or entities other than licensed attorneys and
law firms to provide legal services, including
1. A non-profit corporation organized under Chapter 55A for the sole purpose of
rendering indigent legal services provided such services are rendered through
North Carolina licensed attorneys; and
2. A law school conducting a legal clinic and receiving as clientage only those
persons unable to afford legal advice or services rendered.
North Carolina General Statute § 84-5 and the holding in Lexis-Nexis v. Travishan Corp.,
generally prohibits a corporation from practicing law or appearing as an attorney. Lexis-Nexis v.
Travishan Corp., 155 N.C. App. 205, 573 S.E.2d 547 (2002). Lawyers employed by a
corporation are also not permitted to appear on the corporation’s behalf in court, except for the
limited purpose of avoiding default or prosecuting a claim in small claims court. Duke Power
3
Co. v. Daniels, 86 N.C. App. 469 (1987). A corporation may also not be represented “pro se” by
its CEO, a member of its board of directors, or shareholders. See Lexis-Nexis v. Travishan
Corp., 155 N.C. App. 205, 573 S.E.2d 547 (2002). Obviously, corporations specifically
authorized to practice law (i.e., law firms) under Chapter 55B of the General Statutes are
exempted from the prohibition set forth in N.C.G.S. § 84-5.
North Carolina courts on several occasions have addressed the issue of what specific
actions constitute the unauthorized practice of law under the state's UPL statutes. In Seawell v.
Carolina Motor Club, Inc., 209 N.C. 624, 184 S.E. 540 (1936), the North Carolina Supreme
Court decided whether a motor club's operation of a claims and adjustment department
constituted the unauthorized practice of law. Id. at 630, 184 S.E. at 543. In Seawell, the claim
and adjustment services of Carolina Motor Club were performed by lay employees and agents of
the club, and by attorneys employed, retained, and paid by the Motor Club. Id. at 629, 184 S.E.
at 542. As stated by the Court in Seawell, North Carolina's UPL statutes were not enacted for the
purpose of giving the legal profession a monopoly in the preparation of legal documents, but
rather to provide "security of the people against incompetency and dishonesty in an area of
activity affecting general welfare." State v. Pledger, 257 N.C. 634, 637, 127 S.E.2d 337,339
(1962). Nevertheless, the Seawell court concluded that the offering of legal services by the
Motor Club for compensation violated the ban on unauthorized practice by corporations. Id. at
632, 184 S.E. at 545. The court reasoned that "[a] corporation cannot lawfully practice law and
that it is a personal right of the individual . . . [that] cannot be delegated or assigned....” Id. at
631, 184 S.E. at 544. Since a corporation cannot practice law directly, it cannot do so indirectly
by employing lawyers to practice for it. As noted briefly above, the Seawell case is noteworthy
as it addresses what is included within the term “practice of law” and specifically notes real
estate “conveyancing” as being embraced within the definition of the quoted phrase which is set
forth in N.C. Gen. Stat. 84-2.1. Thus, the North Carolina Supreme Court has recognized that
conveyancing or closing real estate purchase and sale transactions has been considered by our
highest Court to be the practice of law since 1936.
In Gardner v. North Carolina State Bar, 316 N.C. 285, 341 S.E.2d 517 (1986), the North
Carolina Supreme Court upheld an ethics opinion of the North Carolina State Bar finding a UPL
violation. The North Carolina State Bar had determined that an attorney who was also a full-
time salaried employee of an insurance company could not represent an insured as counsel of
record. Id. at 288, 341 S.E.2d at 519. The North Carolina Supreme Court found that
representation by the attorney would constitute the unauthorized practice of law. Id. The court
affirmed the Bar's reasoning that allowing attorney-employees to represent insureds would
"violate the ban on the practice of law by corporations" and that "the proposed practice would
result in an increased risk of conflicts of interest that the Bar considered unacceptable." Id.; see
also Lexis-Nexis v. Travishan Corp., 155 N.C. App. 205, 573 S.E.2d 547 (2002).
II. Who Prosecutes UPL and How?
Who has the Statutory Authority to Investigate UPL? The legal authority to investigate
UPL is vested in the North Carolina State Bar Council or any of its committees appointed by it
4
for that purpose (i.e. the AP Committee), including the power to investigate charges or
complaints of:
1. unauthorized or unlawful practice of law; or
2. the use of the designations, “North Carolina Certified Paralegal,” “North Carolina
State Bar Certified Paralegal,” or “Paralegal Certified by the North Carolina State Bar
Board of Paralegal Certification.”
N.C.G.S. § 84-37(a); 27 North Carolina Administrative Code (NCAC) .0206(1). District
attorneys also have inherent power to investigate UPL arising from the fact that any person
found violating the provisions of N.C.G.S. 84-4 to 84-8 (prohibiting the practice of law by
persons unlicensed to practice in this State) may be found guilty of a Class 1 criminal
misdemeanor.
The North Carolina State Bar established the AP Committee to investigate allegations of
UPL and to protect the public from being unlawfully advised and represented in legal matters by
unqualified persons. 27 NCAC .0201. District bars are not permitted to conduct separate
proceedings into UPL matters and are required by State Bar regulations to assist and cooperate
with the State Bar in reporting and investigating matters of alleged UPL. 27 NCAC .0202(b).
Thus, in terms of the profession policing UPL, the power to investigate and enjoin UPL is
statutorily vested in the North Carolina State Bar.
There are several layers of responsibility within the State Bar for addressing the issue of
UPL. The State Bar Council supervises the administration of the AP Committee and appoints a
counsel who serves at the pleasure of the council. 27 NCAC .0204. The Chair of the AP
Committee has general power to supervise counsel, to recommend to the AP Committee an
investigation be initiated, that a complaint be dismissed, to direct that a letter of notice to an
accused person be sent, to notify an accused if a complaint is dismissed, to call meeting of the
AP Committee, to issue subpoenas, to administer oaths, and to file and verify complaints. 27
NCAC .0205(a).
The AP Committee’s powers in connection with the unauthorized practice of law include:
1. to direct counsel to investigate alleged UPL; 27 NCAC .0206(1);
2. to hold preliminary hearings, find probable cause, and recommend to the Executive
Committee of the State Bar that a complaint for injunction be filed against a
respondent; 27 NCAC .0206(2);
3. to dismiss allegations of UPL upon a finding of no probable cause 27 NCAC
.0206(3);
4. to issue letters of caution, which may include a demand to cease and desist, to
respondents in cases where the Committee concludes that
a) there is probable cause to believe that a respondent has engaged in UPL,
but
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i. the respondent has agreed to refrain from engaging in the conduct
in the future;
ii. respondent is unlikely to engage in the conduct again; or
iii. either referral to a district attorney or complaint for injunction is
not warranted under the circumstances.
b) there is no probable cause established that respondent has engaged in
UPL, but
i. the respondent’s conduct may be improper and may become the
basis for injunctive relief if continued;
ii. the Committee otherwise finds it appropriate to caution the
respondent;
5. to direct counsel to stop an investigation and take no action; 27 NCAC .0206(5);
6. to refer a matter to another agency, including the district attorney for criminal
prosecution and to other committees of the North Carolina State Bar; 27 NCAC
.0206(6)
7. to issue advisory opinions as to whether contemplated conduct of nonlawyers would
constitute UPL in North Carolina; 27 NCAC .0206(7).
The AP Committee and its Chair rely heavily on the work performed by its counsel. The
AP Committee counsel is likely the person that the public has the most contact with on a day to
day basis in connection with alleged UPL matters and on-going investigations by the State Bar.
The counsel serving the AP Committee has the power and duty
1. to initiate an investigation when authorized by the Chair; 27 NCAC .0207(1);
2. to direct a letter of notice to a respondent when authorized by the Chair; 27 NCAC
.0207(2);
3. to investigate matters of alleged UPL whether initiated by filing of a complaint or
otherwise 27 NCAC .0207(3);
4. to recommend to the Chair a matter be dismissed if the complaint is frivolous or falls
outside the Council’s jurisdiction; that a letter of notice be issued; or that a matter be
considered by the AP Committee; 27 NCAC .0207(4);
5. to prosecute all UPL matters before the AP Committee and the courts; 27 NCAC
.0207(5);
6. to represent the State Bar in any trial or proceeding regarding alleged UPL; 27 NCAC
.0207(6);
6
7. to employ assistant counsel, investigators, and other administrative personnel as the
Council may authorize; 27 NCAC .0207(7);
8. to maintain permanent records of all matters and the disposition of same; 27 NCAC
.0207(8); and
9. to perform such other duties the council may from time to time direct; 27 NCAC
.0207(9);
The Council of the North Carolina State Bar, through the AP Committee and its counsel,
may also bring or cause to be brought and maintained in the name of the North Carolina State
Bar an action or actions, against any person or entity that engages in rendering any legal service,
holds himself or herself out as a North Carolina certified paralegal by use of the designations set
forth above, or makes it a practice or business to render legal services that are unauthorized or
prohibited by law. Id.
Upon receiving a recommendation from the AP Committee that a complaint seeking
injunctive relief be filed, the State Bar Executive Committee reviews the matter and determines
whether injunctive relief is necessary to protect the public interest and ought to be prosecuted.
27 NCAC .0208(a). Upon deciding a matter ought to be pursued, the State Bar Executive
Committee directs counsel to prepare the necessary pleadings as soon as practical for signature
by the chairperson and filing with the appropriate tribunal. 27 NCAC .0208(2). If the State Bar
Executive Committee decides not to follow the AP Committee’s recommendation, the matter
then goes before then full State Bar Council at the same quarterly meeting to determine whether
the recommended action is necessary to protect the public interest and ought to be prosecuted.
27 NCAC .0208(c). If the Council decides not to follow the AP Committee’s recommendation,
the matter is referred back to the AP Committee for alternative disposition. 27 NCAC .0208(d).
If probable cause exists to believe a respondent is engaged in UPL and immediate action is
needed to protect the public interest before the next quarterly meeting of the AP Committee, the
chairperson, with the approval of the president of the Council, may file and verify a complaint or
petition in the name of the North Carolina State Bar. 27 NCAC .0208(e). Thus, in addition to its
explicit authority to investigate UPL under N.C.G.S. 84-37, the State Bar is also vested with the
authority to go to court to secure an order to enjoin such unlawful conduct.
In any action brought to restrain or enjoin UPL or other conduct prohibited by N.C.G.S. § 84-37, any final judgment in favor of the North Carolina State Bar perpetually restrains the
defendant or defendants from the commission or continuance of the unauthorized or unlawful act
or acts. N.C.G.S. § 84-37(b). Further, a temporary injunction to restrain the commission or
continuance of the act or acts complained of may be granted upon proof or by affidavit that the
defendant or defendants have violated any of the laws applicable to the unauthorized or unlawful
practice of law or any designation implying certification by the North Carolina State Bar. Id.
Venue for actions brought to enjoin conduct prohibited by Chapter 84 is in the superior court of
any county in which the relevant acts are alleged to have been committed or in which there
appear reasonable grounds that they will be committed in the county where the defendants in the
action reside, or in Wake County. N.C.G.S. § 84-37(c). In actions brought under Chapter 84, the
North Carolina State Bar has the power to “examine the adverse party and witnesses before filing
7
a complaint and before trial in the same manner as in civil actions and as permitted by law.”
N.C.G.S. § 84-37(d).
The North Carolina State Bar or its duly appointed committee may also issue advisory
opinions in response to inquiries from members of the public regarding whether contemplated
conduct would constitute UPL. N.C.G.S. § 84-37(f). The AP Committee has issued two
advisory opinions of note involving lay closers in residential real estate transactions and whether
a non-attorney can represent a third party in a quasi-judicial variance or special use hearing
which are discussed in more detail below.
Who is responsible for enforcing Chapter 84 prohibitions against UPL?
While the State Bar does have the authority to enjoin UPL under N.C.G.S. § 84-37,
District attorneys across the State also have a statutory duty to enforce that laws prohibiting
UPL. Specifically, the district attorney of any of the superior courts shall, upon the application
of any member of the Bar, or of any bar association, of the State of North Carolina, bring such
action in the name of the State as may be proper to enjoin any person, corporation or association
of persons who are alleged to have violated the prohibitions against UPL set forth in N.C.G.S. §§
84-4 to 84-8. N.C.G.S. § 84-7. It is also the stated “duty” of the district attorneys of this State to
indict any person, corporation, or association of persons upon the receipt of information of the
violation of the provisions of N.C.G.S. §§ 84-4 to 84-8. Persons found to have violated the
provisions of N.C.G.S. §§ 84-4 to 84-8 shall be guilty of a Class 1 misdemeanor.
In Baars v. Campbell University, Inc., 148 N.C. App. 408, 558 S.E.2d 871 (2002), the
Court of Appeals found that a private individual could not recover from a corporation for alleged
UPL under N.C.G.S. 84-5 because “that statute does not provide a private cause of action.”
Though not specifically decided by this opinion or in any other North Carolina case reviewed by
this author, and in light of the holding in Baars, it is likely a court could similarly find that there
exists no private cause of action for an individual’s violation of the prohibition in N.C.G.S. § 84-
4 against UPL. If that is the case, the only options for direct enforcement of Chapter 84
prohibitions against UPL as to persons or companies engaged in UPL is through injunction
proceedings initiated and prosecuted by the North Carolina State Bar or a local district attorney,
or by prosecution of an offender by a district attorney for the criminal offense of unauthorized
practice of law which is a Class 1 misdemeanor under N.C.G.S. § 84-8.
III. Real Estate UPL in North Carolina
Background of How We Got to Where We Are. As many attorneys across the State can
recall, the issue of non-lawyers or lay closers conducting and closing residential real estate loans
was hotly debated by the North Carolina State Bar from 1999 to 2003. Initially, a State Bar
Formal Ethics Opinions in 1999 held that an attorney must be present and readily available to
answer questions at a residential real estate closing (99 Formal Ethics Opinion 13), and two
Formal Ethics Opinions in 2001 confirmed and clarified the requirement that an attorney be
8
“physically present” at the closing table (2001 FEO 8 and 2001 FEO 4). These actions by the
Ethics Committee caused the Department of Justice and the Federal Trade Commission to
intervene and write a letter dated December 14, 2001 to the North Carolina State Bar Ethics
Committee objecting to mandatory attorney presence at residential real estate closings. The
grounds laid out by the DOJ/FTC as to their objections to 2001 FEO 8 and 2001 FEO 4 included
that requiring attorneys to be physically present at closing would:
1. force consumers preferring to forego attorney presence at the closing to hire an
attorney;
2. raise the cost of closings and refinancing;
3. reduce competition from out-of-state lending companies; and
4. result in harmful delays in the closing process.
See Letter from the Federal Trade Commission and the Department of Justice to the Ethics
Committee, North Carolina State Bar (December 14, 2001). A copy of this letter may be
obtained by pointing your web browser to http://fl1.findlaw.com/news.findlaw.com
/hdocs/docs/doj/usdojncbar121401ltr.pdf. In the jointly issued letter, the FTC and DOJ warned
the North Carolina State Bar that prohibiting laypersons from conducting residential real estate
closings under the guise of constituting UPL may create monopoly conditions and therefore
violate federal antitrust laws and Constitutional prohibitions against restraining interstate
commerce among the states. Id.
On receiving the objections of the FTC and DOJ, the State Bar initiated a further inquiry
into the legality and justifications surrounding 2001 FEO 8 and 2001 FEO 4. The State Bar
formed a Special Committee on Real Estate Closings which issued 2002 Formal Ethics Opinion
9 and 2002 Advisory Opinion 1. After receiving comment from various stakeholders and
reviewing and revising draft opinions, the State Bar adopted these opinions on January 24, 2003.
The 2002 Authorized Practice Advisory Opinion 1 (“2002 APAO 1”) addressed two main
questions. First, may a non-lawyer handle or represent any party in a residential real estate
closing. As to this question and issue, and after explaining the primary phases and functions
performed in the typical real estate closing, the State Bar answered quite definitively in the
negative. The State Bar listed eight specific activities that, if performed by a non-attorney,
would constitute UPL:
1) performing abstracts or providing an opinion as to the title of real property;
2) explaining the legal status of a real estate title, the legal impact of anything found
in the chain of title, or the legal effect of any title insurance commitment
exception, unless a licensed title insurer, agency, or agent explains an
underwriting decision to the insured or prospective insured;
3) explaining or giving advice regarding the rights or responsibilities of parties
concerning the land survey to the extent such explanations affect the parties' legal
rights or obligations;
9
4) providing legal opinions or advice at the request of any party;
5) advising or instructing a party to the transaction regarding alternate means of
taking title to the property or the legal consequences of acquiring property in a
particular manner;
6) drafting legal documents for a party to the transaction or assisting a party in the
completion of a legal document or aiding a transaction party in choosing the
appropriate legal document form from among several forms;
7) explaining or recommending a course of action which requires legal judgment or
will affect a party's legal rights or obligation;
8) attempting to resolve or settle a dispute between the parties that will affect their
legal rights or obligations.
It is the State Bar’s answer to the second question raised in 2002 APAO 1 that apparently
created conditions that caused lay closing companies to believe they had won a victory and a
presumed right to begin new businesses closing real estate loans in North Carolina. The second
question raised by the State Bar in 2002 APAO 1 asked:
May a non-lawyer who is not acting under the supervision of a lawyer licensed in North
Carolina (1) present and identify the documents necessary to complete a North Carolina
residential real estate closing, direct the parties where to sign the documents, and ensure
that the parties have properly executed the documents; and (2) receive and disburse the
closing funds?
As to these two specific questions, the State Bar answered in the affirmative ruling that a
non-lawyer may oversee a closing as long as he does not participate in any of the eight functions
outlined by the State Bar which constitute the practice of law. After interpreting a “green light”
from the State Bar, several homegrown and out-of-state lay closing companies continued at a
faster pace to set up shop and market their services for closing real estate loans despite the State
Bar’s specific ruling that only attorneys could handle a residential real estate transaction.
The primary business model adopted by the lay closers involved a company that
marketed services to real estate agents, lenders, mortgage brokers, banks, etc., that they could
close real estate loans as a “single source” closing provider. Some closing companies even
offered discounts to real estate professionals offering “10% off your buyer’s closing costs.” The
goal of the closing companies was to secure as many buyer clients as possible from other real
estate professionals and lenders and provide settlement or closing services in connection with
residential real estate transaction.
Typically, these companies have been operated by persons with real estate backgrounds.
Based on interviews and correspondence, the companies hire paralegals to conduct, manage, and
oversee the closing process. They directly contract with abstractors who perform title searches,
oftentimes in far and distant locations from the attorneys which are then contracted to review and
certify title which was searched by the non-lawyer paralegal or abstractor. The lay closing
10
company sometimes even provided a “title report” to a licensed attorney who, for documented
fees as small as $7.50, would review the title documents secured by the closing company’s
abstractor and certify same back to a title company for issuance of the required title insurance
policies.
The lay closing shop would then get the attorney to review and approve deed drafted by
employees of the lay settlement shop, or have the attorney prepare it for a relatively small fee
(usually $50) and forward to the closing company for execution at a closing conducted at the lay
closing shop by its non-lawyer employee. Prior to closing, the lender will have provided the loan
documents to the closing company along with closing instructions. The closing company
normally prepared the HUD-1 settlement statement as well and is listed thereon as the
“settlement agent.” At this point, all the elements necessary to close a real estate loan would be
in place and no attorney would have ever had occasion to establish a lawyer-client relationship
with the prospective buyer-borrower or exercise any independent professional judgment on
behalf of the borrower. Rather, the client relationship was between the closing company and the
buyer-borrower, and the closing company “quarterbacks” the entire closing process including
contracting out the two functions that were specifically defined by statute as “practicing law”
under N.C.G.S. § 84-2.1. These closing practices effectively eliminate the traditional interface
between lawyer and borrower/client, and the transaction is largely if not completely handled by
the lay closing shop on behalf of the borrower/client.
After numerous UPL complaints to the Bar Association’s Consumer Protection
Committee and to the State Bar Authorized Practice Committee, the State Bar began to take
action and find that the business model of several of the more “aggressive” closing companies
was illegal and ordered them to cease and desist their illegal business practices. Unfortunately
for the closing companies, it appears they miscalculated the intent and breadth of the State Bar’s
ruling 2002 APAO 1 by interpreting its limitations overly narrow and viewing its permitted
conduct overly broad to authorize lay closing shops in North Carolina to conduct real estate
closings.
The primary problem for the State Bar was that the closing companies had turned 2002
APAO 1 on its head. In that advisory opinion, its was clear that the State Bar was of the opinion
that non-lawyers are not authorized by North Carolina law to handle a residential real estate
transaction. Yet, by their actions, many closing companies supplanted the attorney role in the
closing process entirely and the attorneys were transformed into, in essence, a mere contractor
for the closing companies who otherwise managed and controlled the entire closing process. As
a result, the relationship with the borrower-buyer client was primarily with the closing company,
and not with the attorney that by law is supposed to be tasked with handling the real estate
closing.
One of the recent illustrative cases of UPL by a closing company using such a business
model involved a company located in Charlotte that operated under the name The Settlement
Source (“TSS”). This company was found by the State Bar on at least two separate occasions to
have engaged in business practices in violation of Chapter 84 and issued two separate letters of
caution to cease and desist. Evidence was revealed that a lawyer working for the company was
certifying title and preparing deeds for closings, which violates the prohibition in N.C.G.S. 84-5
11
against corporations practicing law. TSS then began to send title work and deed preparation to a
Florida licensed attorney who had failed the North Carolina Bar Exam at the time and was
unlicensed to practice law. This Florida licensed attorney shared an office suite with TSS as
well. After it was brought to the Florida attorney’s attention that her conduct violated Chapter
84 prohibitions against UPL, she established through filing with the State Bar a registered
“interstate law firm.” To do so, the Florida attorney hired a North Carolina attorney that
“supervised” the title work and deed preparation at the interstate law firm.
After several complaints that initiated an investigation and hearings before the
Authorized Practice Committee, the chair of the committee issued a July 30, 2007 Cease and
Desist Letter to TSS that restated the thrust of 2002 APAO 1 and its prohibition against non-
lawyers handling residential real estate closings. To access and review a copy of the July 30,
2007 Cease and Desist Letter from Anthony Di Santi, Chair of the AP Committee, to counsel for
The Settlement Source click on the following weblink:
http://yourslingshot.files.wordpress.com/2011/01/state-bar-cease-and-desist-letter-to-tracey-
robinson-06ap0010.pdf. The Settlement Source Cease and Desist Letter specifically found that
the business model created by TSS, which is described in general terms above, was illegal.
Among the facts which led the AP Committee to conclude the company was engaging in illegal
UPL include:
i. offering to provide residential real estate closing services,
ii. marketing the company’s services to real estate agents, homebuilders, and
lenders,
iii. holding out as able to provide the full panoply of real estate closing services,
iv. advertising title services and the services of a “paralegal” who will “prepare
documents” and “bring intimate knowledge about the process . . . to the
closing table,”
v. advertising that as part of the company’s services they review every document
and “look for errors, uncover hidden pitfalls, anticipate needs, and
troubleshoot potential problems,”
vi. making arrangements with attorneys to provide title opinions and legal
documents for or on behalf of the buyer and the lender for closings conducted
by Settlement Co.,
vii. employing paralegals to provide title abstracts to attorneys that Settlement Co.
engages to provide the legal, closing services,
viii. preparation of deeds, and
ix. intermingling resources (including domain names) with at least one attorney
making it appear that the attorney was part of Settlement Co.
12
The July 30, 2007 Cease and Desist letter also concluded that TSS’ marketing of its real
estate closing services to real estate agents, homebuilders and lenders is illegal and must cease
immediately as such marketing stated or implied the company can provide all the necessary
services for a closing so as to convince these parties to influence the buyer’s decision to use
TSS’ closing services. Re-emphasizing that 2002 APAO 1 prohibits non-lawyers from handling
residential real estate closings, it follows that non-lawyers are also prohibited from holding
themselves out and advertising their business as a “one-stop loan closing solution.” In addition,
the Florida licensed attorney which assisted TSS through a registered “interstate law firm” was
also issued a Cease and Desist letter for UPL in connection with her actions closing residential
real estate loans as counsel for TSS and for circumventing North Carolina laws against UPL in
forming the separate registered “interstate law firm” with no substantial presence out-of-state and
hiring North Carolina attorneys to “oversee” her work closing real estate loans in this state. See
Cease and Desist Letter dated July 30, 2007 to Tracy Cabanis-Robinson, which can be viewed at
the following weblink: http://yourslingshot.files.wordpress.com/2011/01/state-bar-cease-and-
desist-letter-to-tracey-robinson-06ap0010.pdf. Another illustrative case resulting in an action by
the State Bar involved a company called Accurate Title Group. A copy of the Cease and Desist
Letter issued to Accurate Title Group can be accessed and reviewed by clicking on the following
weblink: http://yourslingshot.files.wordpress.com/2011/01/state-bar-cease-and-desist-letter-to-
accurate-title-group-05ap0130.pdf.
Though the State Bar stood firm in issuing the July 30, 2007 Cease and Desist Letter to
TSS and Accurate Title Group, other lay closers continue to close loans across North Carolina in
a variety of business models, some legal and others in violation of Chapter 84. Those companies
that restrict their services and marketing to only services of (a) identifying documents and telling
borrower-buyers where to sign, and (b) receiving and disbursing closing funds, have not in the
past run afoul of the State Bar and its ruling in 2002 APAO 1. It is doubtful that a lay closing
shop can survive by providing these limited services in a market where attorneys generally
include such services in their closing fee. However, those companies that perform services other
than the two stated loan closing functions set out by the State Bar, or advertise their business and
hold themselves out as able to provide other loan closing services which constitute the practice
of law as defined and delineated by North Carolina law and 2002 APAO 1, may be at risk of
engaging in illegal UPL.
In the summer of 2009, after the FBI was contacted in connection with the failure by TSS
to disburse closing proceeds in numerous transactions, the company was shut down and closed
by its owners. Subsequently, it was revealed that the owners of TSS had taken over $2.6 million
dollars of client funds which has not been repaid. At least one of the owners of TSS was
sentenced to active prison time. The title insurance company insuring the closings that were
affected was on the hook for some or all of the $2.6 million.
The only persons harmed by the unlawful business practices of TSS and others like them
are consumers. Individual consumers lose money, pay exorbitant fees, and receive legal services
performed by persons not trained in the law or duly licensed to provide legal services to the
public. Consumers as a whole end up paying increased title insurance premiums to cover the
losses title insurance companies pay out in cases such as the TSS matter (and in cases of attorney
defalcation as well). Indeed, the newest title insurance rate structure approved in 2010 by the
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North Carolina Department of Insurance increased the rate for title insurance in North Carolina
from $2.00 per $1,000.00 of purchase price to $2.05 per $1,000.00 of purchase price between
$100,000 and $500,000. Though a 2.5% rate hike seems small, given the total amount of
coverage provided in North Carolina real estate transactions on an annual basis, the increased
cost to North Carolina consumers as a whole is quite substantial in terms of increased costs.
IV. Massachusetts Real Estate Closing Industry at Stake and
Potential Ramifications for North Carolina
The Real Estate Bar Association of Massachusetts, Inc. (REBA) is 501(c)(6) trade
association comprised of over 4,000 real estate attorney members throughout the Commonwealth
of Massachusetts. For over 150 years, REBA’s mission has been to advance the practice of real
estate law by creating and sponsoring professional standards, actively participating in the
legislative process, protecting the rights and interests of consumers, seeking redress in courts
where needed, creating educational programs and materials, and demonstrating and promoting
fair dealing and good fellowship among members of the real estate bar across the State of
Massachusetts.
National Real Estate Information Services, Inc. (NREIS) is Pittsburgh-based national real
estate closing firm which provides both conveyancing and title services to residential lender
clients for real estate transactions across the United States, including Massachusetts and North
Carolina.
In November 2007, the Real Estate Bar Association of Massachusetts (“REBA”) filed an
action in Massachusetts state court against National Real Estate Information Services (“NREIS”)
seeking to enjoin NREIS from the unauthorized practice of law. A copy of the complaint can be
viewed at http://yourslingshot.files.wordpress.com/2011/01/upl-complaint-re-nreis3.pdf.
NREIS removed the action to federal court and filed a counterclaim asserting that any restriction
on its business practices was a violation of its federal constitutional rights under the dormant
commerce clause.
Subsequently, the parties filed cross-motions for summary judgment. In April 2009, the
District Court granted NREIS’s Motion for Summary Judgment and denied REBA’s cross
motion. An article discussing the District Court’s ruling can be viewed at the following weblink:
http://yourslingshot.files.wordpress.com/2011/01/article-re-district-court-order-in-reba-v-nreis-
lawsuit.pdf. REBA appealed the District Court’s decision and requested certification of
questions of state law to the First Circuit Court of Appeals. Following a hearing the First Circuit
held that there was no constitutional violation and vacated the District Court’s judgment. The
First Circuit Court’s opinion ultimately found that there was no controlling precedent which
address whether NREIS’s activities constitute the unauthorized practice of law and certified two
questions to the Massachusetts Supreme Judicial Court.
The issues litigated in Massachusetts during the last several years in REBA v. NREIS
have been watched very closely in the industry. Indeed, the issues presented in Massachusetts
are almost identical to ones faced here in North Carolina with the influx of out-of-state, on-line,
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non-traditional lenders, and lay settlement shops seeking to take advantage of a strong and
emerging market for real estate sales. These settlement shops and lenders, including some of the
largest banking names in the market, are seeking to expand services with in-house or affiliated
companies and vendors seeking to provide a host of closing related services from closing and
settlement services, loan brokerage, title insurance, appraisals, and others. In the process, the
traditional role of the attorney in quarterbacking a real estate transaction and working with the
lender and it’s borrower to coordinate the closing process and legal relationships that result is
being supplanted by non-attorney vendors seeking closing business within Massachusetts, North
Carolina, and all across the United States. When these affiliated companies and vendors are
involved, it is observed that their primary concern is more often to please the lender who feeds
them a continuing stream of closing referrals, and thus, these non-attorney closers are prone to
answer and cater almost exclusively to the whims and desires of lenders (often the to the
detriment of consumers). In the process, the welfare of consumers or real estate settlement and
closing services has been and is being sacrificed.
In a huge victory for Massachusetts real estate closing attorneys, the unanimous First
Circuit federal appeals court overturned the controversial lower District Court ruling in REBA v.
NREIS which had potentially opened the door for non-attorneys to conduct controversial
“witness” or “notary” real estate closings in Massachusetts. The lower court ruling had
threatened to overturn long-standing statewide practice under which attorneys conduct real estate
closings which would have opened the door for the influx of “notary” or “witness” closings
where buyers and sellers receive no legal guidance during the closing. A copy of the First
Circuit court’s opinion can be viewed at the following weblink:
http://yourslingshot.files.wordpress.com/2011/01/1st-circuit-coa-opinion-reversing-district-
court-reba-v-nreis1.pdf (hereinafter “1st Circuit Opinion”).
First Circuit Holds that Massachusetts Courts to Have the Final Say Regarding UPL
The First Circuit ruled in REBA v. NREIS that the Massachusetts state Supreme Judicial
Court has the final say on whether attorneys in that state must conduct real estate closings under
rules governing the unauthorized practice of law. The case and two questions referred to the
SJC, included:
1. Whether NREIS's activities, either in whole or in part, based on the record in this case
and as described in the parties' filings, constitute the unauthorized practice of law in
violation of Massachusetts laws prohibiting the unauthorized practice of law.
2. Whether NREIS's activities, in contracting with Massachusetts attorneys to attend
closings, violate Massachusetts laws prohibiting the unauthorized practice of law.
It goes without saying that the real estate bar in Massachusetts is hopeful that its Supreme
Judicial Court will be more hospitable to the real estate attorneys’ position and rule in favor of
their position that NREIS’s business constitutes the unauthorized practice of law. Also pleasing
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to REBA, the federal appeals court vacated the $900,000 attorney fee award by the District
Court.
Argument by REBA before the Massachusetts Supreme Judicial Court
After the Court of Appeals certification of these two issues, and on November 2, 2010,
the Massachusetts Supreme Judicial Court heard arguments in the closely watched case of REBA
v. NREIS. The case now before the Massachusetts Supreme Judicial Court pits Massachusetts
real estate closing attorneys versus out of state non-attorney settlement service providers which
are attempting to perform “witness or notary” closings in Massachusetts. At stake is nothing less
than the multi-billion dollar Massachusetts real estate closing industry.
The long standing practice in Massachusetts has been for licensed attorneys to oversee
and conduct the residential real estate closing process. However, NREIS’s business model is
designed to supplant the attorney’s central role in the closing process, disaggregate the various
functions or tasks associated with a real estate closing, and then outsource the vast majority of
those functions to back office workers who aren’t trained attorneys. REBA argues that this
practice violates Massachusetts common law and consumer protection statutes requiring that
attorneys perform the most vital functions of a real estate closing transaction, such as certifying
and analyzing title, preparing the deed, handling the transfer of good funds, where necessary, and
conducting the closing.
The NREIS’s Business Model Violates Massachusetts Law Prohibiting UPL
REBA argues in their brief before the SJC that NREIS is providing “conveyancing
services” to residential mortgage lender clients for real estate transactions (sales and refinancing)
within Massachusetts in violation of statutory prohibitions against the unauthorized practice of
law. See REBA Brief to the Massachusetts Supreme Judicial Court at
http://yourslingshot.files.wordpress.com/2011/01/reba-brief-re-upl-to-massachusetts-sjc.pdf
(hereinafter “REBA Brief”) The more fundamental argument by REBA is that the real estate
closing is a process (the practice of conveyancing) that cannot be split up and delegated by an
out-of-state corporation such as NREIS to non-attorney vendors each of which has little or no
understanding or control over the closing process as a whole.
It is important to bear in mind that NREIS does not provide these conveyancing or
closing services itself. Rather, NREIS subcontracts limited portions of the work necessary to
convey real estate to attorneys and others whom NREIS “manages” during the course of any
particular real estate closing. In essence, NREIS is the center of the wheel surrounded by other
supporting spokes or vendors which enable NREIS to accomplish the necessary tasks required
for the company to handle a residential real estate closing from beginning to end and thereby
handle the conveyance of real property from one party to another. According to REBA’s
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arguments, this constitutes conveyancing and handling or managing the real estate closing
process, which is the unauthorized practice law.
Conveyancing is the Practice of Law. According to established Massachusetts law, the
practice of “conveyancing” is one which lends itself particularly to formulation through
decisional law and commentary as to what are appropriate procedures.” Falls River Sav. Bank v.
Callahan, 18 Mass. App. Ct. 76, 83 (1984). In brief, the “appropriate procedures” consist of
evaluating the title to real estate being purchased or mortgaged and undertaking the various
further steps required to transfer the legal interests in that property. Since 1935, the
Massachusetts Supreme Judicial Court has recognized that conveyancing is the practice of law to
be conducted by attorneys. Opinion of Justices, 289 Mass. 607, 613 (1935) (practice of law
includes conveyancing). “Generally, all state courts agree that conveyancing in fact constitutes
the practice of law.” See Note, The Model Rules of Professional Conduct and the Unauthorized
Practice of Law, 37 Suffolk U. L. Rev. 169, 176 (2004). See also Formal Advisory Opinion No.
04-1, 280 Ga. 227, 626 S.E.2d 480 (2006) (“The closing of a real estate transaction in this State
constitutes the practice of law”); Bump v. District Court of Polk County, 232 Iowa 623, 637, 5
N.W.2d 914 (1942) (“practice of law . . . includes conveyancing”); Howton v. Morrow, 269 Ky.
1, 3, 106 S.W.2d 81 (1937) (same); People v. Allani, 227 N.Y. 334, 337-38, 125 N.E. 671 (1919)
(same); Dayton Supply & Tool Co. v. Montgomery Cty. Bd. Of Revision, 111 Ohio St.3d 367,
369, 856 N.E.2d 926 (2006) (same); R.I. Bar Ass’n v. Auto Serv. Ass’n, 55 R.I. 122, 134, 179 A.
139 (1935 (same); S.C. Medical Malpractice Joint Underwriting Ass’n v. Frolich, 297 S.C. 400,
377 S.E.2d 306 (1989) (same); In re Duncan, 83 S.C. 186, 65 S.E. 210 (1935); 7 Am. Jur. 2d
Attorneys at Law, § 119 (“The practice of law is not limited to the conduct of cases or litigation
in court; it embraces . . . conveyancing”); Seawell v. Carolina Motor Club, 209 N.C. 624, 631,
184 S.E. 540, 544 (1936) (same).
NREIS Engages in Conveyancing in Massachusetts. The first step in conveyancing is,
according to the contract to purchase, to evaluate and determine whether a seller actually has
good and clear record and marketable title that he can transfer to the seller, and that there are no
defects or clouds in title. This is the due diligence portion of the conveyancing process which is
comprised in large part by the title search, examination, and certification. According to REBA,
NREIS has contracted with a non-attorney in Massachusetts, Connelly Title, to perform this core
conveyancing function and as a result engaged in UPL.
A subsequent step in the conveyancing process is the preparation of legal documents that
transfer various interests in the real property being transferred by seller to buyer, and in the case
of a mortgage from mortgagor to mortgagee. REBA presented documentation and proof that
NREIS provided deeds and other legal documents to the parties to a transaction upon request.
NREIS did not prepare the deed itself, but rather contracted with a non-attorney corporation
located in Las Vegas, which prepares the deeds for its transactions. Again, according to REBA,
these actions by NREIS constitute illegal UPL.
After the title examination and document preparation, the next step in the conveyancing
process is the settlement meeting or closing of the transaction at which the parties meet, execute
the necessary legal documents to effect the conveyance, and exchange contractual consideration.
NREIS’s lender clients require NREIS to “ensure that a Massachusetts attorney is engaged for
17
the purpose of conduction the closing.” To do so, NREIS maintains a “network” of 70
Massachusetts attorneys for this purpose. Based on the date and place of the settlement, NREIS
chooses one of these attorneys to attend and conduct the settlement meeting. NREIS provides
the attorney selected the time and place of the meeting and provides the attorneys with contact
information for the parties expected to attend. NREIS also informs the attorney how he or she
will receive the documents prepared the lender (mail, fax or email). According to REBA these
conveyancing functions performed by NREIS also constitute illegal UPL. In sum and substance,
NREIS controls, handles, and manages the closing process and directs and oversees the
conveyancing functions.
For any NREIS closing, the attorney involved in the limited role of attending the
settlement meeting has no contact with the lender and has very limited interface with the
consumer-borrower. The attorney is not involved in (i) the preparation or review of documents
to be executed by the parties at the settlement meeting, (ii) the examination or review of title to
the property, (iii) the recording of title documents, or (iv) the disbursement of funds. Following
the settlement meeting, where the contracted attorney acts merely as a notary witnessing the
signatures of the parties to closing documents and is prohibited from providing any legal counsel
to any of the parties as to the state of title or the legal import of the closing documents, the
attorney merely collects the documents and sends them to NREIS. The manipulation of the
attorney in this portion of the conveyancing process raises several ethical issues for attorneys
including (i) ensuring they provide competent legal services to their clients, (ii) preserving and
protecting the attorney’s duty of loyalty to their client rather catering to a vendor management
company such as NREIS whose incidental interest in the transaction is limited to a $450
settlement fee and a pipeline of continuous closing work desired by the “kept attorney”, (iii)
avoiding illegal fee sharing with non-lawyers, and (iv) not allowing a non-lawyer to interfere
with the professional independent legal judgment the attorney owes to his or her clients.
Following the settlement meeting and after it receives the documents from the attorney
notary closer, NREIS reviews them to ensure they are properly completed, just as any attorney
closing a real estate transaction would do. Following this review, NREIS ensures that the title
documents are properly recorded. Lender instructions to NREIS require NREIS to ensure that
the mortgage to the lender “creates a valid lien on the property.” Other instructions require
NREIS to make certain judgments as to “applicable state law.” According to REBA, these
business practices by NREIS also constitute UPL in violation of Massachusetts law.
The process for properly recording legal instruments with the register of deeds requires
specialized legal knowledge. In Massachusetts each registry of deeds has within it two
independent systems of land record-keeping. One is a Torrens-type system and the second is an
unregistered land system managed by local registers of deeds. There are a set of 63 guidelines
published by the Massachusetts land court to assist registry personnel in determining the
suitability of documents presented for recording. These guidelines consist of 136 pages and refer
to over 80 different statutes. North Carolina registers of deeds have similar recording guidelines
and recording practices can differ significantly across the 100 separate registers of deeds
operating land registry systems within North Carolina.
18
Following the recording, and according to REBA’s Brief, NREIS completes the parties’
transaction by disbursing the funds in accordance with the settlement statement. Disbursement
typically includes paying real estate taxes, paying any other encumbrances, obtaining discharges
or releases of liens or judgments, complying with the parties obligations per the Purchase
contract as to the payment of various costs of closing, and paying commissions due to real estate
agents or brokers.
Questions From the Massachusetts Supreme Judicial Court & Analysis
During oral argument before the Massachusetts Supreme Judicial Court (which can be
viewed online in its entirety via webcast at
http://www.suffolk.edu/sjc/archive/2010/SJC_10744.html) the justices were very active in
discussing the issues presented by the parties. According to legal commentators who have
analyzed the oral arguments by the parties:
A favorable decision upholds the notion that attorneys are vital to the conveyancing
system, protect consumers, and cannot simply be outsourced to a non-trained drone.
Several of the justices weren’t buying NREIS’s argument that its non-attorney back
office processors never make legal judgments, but instead simply “flag issues.” Justice
Cowen raised several examples of situations requiring an attorney’s trained eye, such as
analyzing a title examination, analyzing title defects, and ensuring that loan documents,
the deed and mortgage are in the correct form.
Justice Cowen said that NREIS couldn’t delegate everything to a paralegal. At some
point an attorney had to make the final call. And that is where some hope the Court will
end up on this case.
Justice Gants and Spina both showed their studying of the conveyancing process in
asking whether NREIS needed to have attorneys certify title (they do under state statute)
and analyze a title rundown (yes, again).
In addition to the parties’ briefs, the SJC received nearly 20 “friend of the court” briefs,
virtually all of which support REBA’s position that NREIS is engaged in the unauthorized
practice of law in Massachusetts. Following the November 2, 2010 oral argument by REBA and
NREIS, the SJC should issue a final ruling in the very near future as to the two certified
questions concerning whether NREIS’s business model as outlined herein is or is not the
unauthorized practice of law in the State of Massachusetts.
Why Is REBA v. NREIS Important To Both Massachusetts and North Carolina Consumers?
The purchase of a home is usually the most important investment most families will ever
make. Home buyers and sellers, as well as lenders, rely on the training, professionalism, and
19
integrity of attorneys to ensure that their property rights are protected. The reason that only
lawyers can give legal advice is to protect the public. It gives the buyer and lender someone to
hold accountable if there are mistakes. These multiple levels of protection permit buyers, sellers
and lenders to confidently and reliably close loans worth hundreds of thousands of dollars every
day. Non-attorney closings only hurt the consumer. In recent years, the real estate closing
process has become more complicated than ever. The voluminous documentation, disclosures,
acknowledgments, and waivers required for modern day lenders to create a loan or debt product
that meets Fannie Mae and/or Freddy Mac requirements, and even more daunting the
requirements of the pooled securities comprised of collaterized debt instruments containing
thousands of mortgages, is mind-bending and confusing to even many attorneys and financial
professionals. In “witness only” or “notary” closings, the non-attorneys who conduct the
closings do nothing more than witness the execution of the closing documents, and cannot
provide any legal guidance or protection to consumers who are in the middle of what has become
a very complex transaction.
In the context of an NREIS closing as outlined above, what happens if an issue arises at
closing requiring legal analysis or implicating a matter that could potentially harm the consumer
by following through with the transaction on the closing table? In short, nothing. However, if an
attorney is handling the closing, the closing attorney has the training to resolve legal issues and
to address and explain matters to a borrower in order to give them a better understanding of the
risks of entering into the transaction at hand so the consumer can make informed decisions. The
non-attorney closer will just sit there and do nothing. The consumer is on his own. Lastly, given
existing market conditions and due to increased competition, there is no difference in cost
between non-attorney closing companies and real estate attorneys. In many instances, attorney
fees have proven to the less than fees earned by non-attorney vendor management companies
such as NREIS.
Is “conveyancing” by a Non-attorney in North Carolina the Unauthorized Practice of Law?
As noted previously above, it is generally recognized by States in this country that
“conveyancing” constitutes the practice of law which is reserved to licensed attorneys. See
citations infra. at pp. 1-2 and 15-16. More particularly, the North Carolina Supreme Court in
1936 stated that:
According to the generally understood definition of the practice of law in this country, it
embraces . . . conveyancing, the preparation of legal instruments of all kinds, and, in
general, all advice to clients, and all action taken for them in matters connected with the
law. In re Duncan, 83 S.C. 186, 65 S.E. 210; In re Pace, 170 A.D. 818, 156 N.Y.S. 641;
Barr v. Cardell, 173 Iowa 18; Ferris v. Snively, 172 Wash. 167, 19 P.2d 942; [***16]
Fitchette v. Taylor, 254 N.W. 910, 94 A.L.R., 356; S. v. Bryan, 98 N.C. 644, 4 S.E. 522.
Seawell v. Carolina Motor Club, 209 N.C. 624; 184 S.E. 540 (1936) (Emphasis added). Based
on the North Carolina Supreme Court’s recognition in the 1936 Seawell case that conveyancing
constitutes the practice of law which is statutorily reserved to North Carolina attorneys under
N.C. Gen. Stat. § 84-2.1 and 84-4, as is the case in Massachusetts according to REBA’s recent
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arguments to the Massachusetts Supreme Judicial Court, attorneys in North Carolina can and
should look to the pending outcome in REBA v. NREIS for guidance as to how North Carolina
courts may analyze these important issues.
What is the Role of the Real Estate Lawyers Association of North Carolina (RELANC)?
There are over 2,000 attorneys that identify themselves as members of the North Carolina
Bar Association’s Real Property Section (“RPS”). There are certainly hundreds if not over a
thousand more attorneys in North Carolina that practice real estate law but simply do not join the
Bar Association, or if they do, choose not to become a member of RPS for one reason or another
(i.e., including the cost of membership in additional practice area sections such as RPS). As a
practice area section within the larger 17,000 member Bar Association, the interests of each such
practice section, including RPS, must often be toned down or tempered in the pursuit of the
larger mission of the North Carolina Bar Association. That is not to say the Bar Association
does not come to the aid of RPS members and other sections when needed, but of necessity,
there will always be issues where the varying sections cannot or will not see eye to eye and thus
the Bar Association will be rightly less enthusiastic about supporting a perceived specialty
agenda where there are conflicting interests to consider and respect. Leaders of the various
practice sections, such as RPS, know and understand this dynamic and sometimes the pursuit of
initiatives that might make good sense to real estate practitioners in general will not be seen as a
fruitful endeavor given the potential conflicting or diverging interests of other practice area
sections. This leads to some issues not being pursued to the fullest extent that members of a
practice section such as RPS may expect given the perceived role RPS serves.
However, the truth is, RPS is not the trade association which regularly acts on real estate
attorney’s behalf when it comes to lobbying and other advocacy, but rather, it is the larger Bar
Association in general. It is often very beneficial to have a large organization such as the Bar
Association with a membership eclipsing 17,000 members strong to get out front and advocate
your interests. In this nature, the Bar Association can be viewed as an effective advocate on a
macro basis where an issue being pursued is less likely to present discord or disagreement among
the several sections within the larger trade association. The Bar Association serves a very vital
purpose in this role. Often, in advocacy one needs an advocate that is a “mile wide” and can
carry a lot of water, but perhaps lacks the requisite depth of technical expertise, to achieve stated
goals of a defined group of attorneys such as real estate practitioners.
Unfortunately, where a particular issue being pursued is highly technical in nature or
dealing with more complex and conflicting interests the advocacy called for is a different kind of
animal and requires a new organizational structure to be successful to advance more special
interests. Instead of being a “mile wide” but lacking the technical expertise, the advocate needed
will have to be more nimble, possess much more substantive knowledge, and be free of
entanglements that could potentially blunt the message or goals being pursued (in essence, “an
inch wide but a mile deep”). The Real Estate Lawyers Association of North Carolina
(“RELANC”) is a new trade association that has been formed to serve this latter role, one that is
viewed by its founding members to complete and support the broader mission and advocacy
goals of the larger Bar Association and the Real Property Section by providing a supporting trade
21
association that can help “carry the water” for high-level advocacy needed in today’s
complicated and ever-evolving real estate industry.
In addition, many have found the inability of the State Bar to take action to stop abusive
closing practices constituting the unauthorized practice of law very frustrating. This is very
understandable. However, given the function and role of the State Bar, to expect them to do
more is unrealistic and outside the statutorily defined role and purposes this state agency is
created to serve. As outlined herein, there are valid reasons why the State Bar, a statutorily
created state agency with self-governing powers granted by the legislature, is limited in its ability
to pursue policies or agendas that real estate practitioners demand in the context of prohibiting
the unauthorized practice of law in real estate closings within North Carolina.
What Value Does RELANC Offer to NC Real Estate Attorneys?
The counterclaim of NREIS in the Massachusetts case of REBA v. NREIS alleged that
"[t]he Amended Complaint by [REBA] and its interpretation of [Massachusetts unauthorized
practice of law statutes], is an act of economic protectionism by Massachusetts lawyers against
out-of-state competition for settlement services." See 1st Circuit Opinion. According to the First
Circuit this counterclaim was read to allege an unusual theory by NREIS, that the filing of the
complaint alleging unauthorized practice was itself a violation of the dormant Commerce Clause.
Under applicable case precedent, a “state actor” such as the State Bar, is constitutionally
barred by the Dormant Commerce Clause of the United State Constitution from interpreting a
statute in manner that serves only to protect the economic interests of a particular trade or
business within a particular State from competition from outside that State. . . . However, unless
the party committing the economic protectionism was a "state actor" there is no viable no § 1983
or dormant commerce claim. Tomaiolo v. Mallinoff, 281 F.3d l, 8 (1st Cir. 2002); Yeo v. Town of
Lexington, 131 F.3d 241, 248-49 & n.3 (1st Cir. 1997).
Given that the North Carolina State Bar is admittedly a “state actor,” its interpretation of
state law (via Authorized Practice Advisory Opinions) to potentially prohibit out-of-state lay
settlement shops from doing business within North Carolina is argued by those wishing to enter
the closing services market as violative of the dormant commerce clause of the Federal
Constitution. This was the argument presented by NREIS against REBA which initially
convinced the federal District Court in Massachusetts to rule in favor of NREIS and against
REBA holding that REBA, an otherwise private association, became a state actor by virtue of the
role given it by Massachusetts state law to assist in bringing actions seeking to enjoin UPL. The
District Court held that REBA, by bringing suit under Massachusetts law and making the
allegations it did, became a state actor because REBA had assumed a traditional public function
and was therefore violating the dormant commerce clause in seeking to protect the economic
interests of a particular trade or business within Massachusetts. See REBA I, 609 F. Supp. 2d at
144 n.67.
On appeal, the First Circuit completely rejected the District Court’s reasoning which was
based on a theory that REBA’s actions violated the dormant commerce clause:
22
“The public function theory requires a plaintiff to "show more than the mere
performance of a public function by a private entity." Perkins v. Londonderry
Basketball Club, 196 F.3d 13, 19 (1st Cir. 1999). A plaintiff must show that "the
private party performed a public function that has been 'traditionally the exclusive
prerogative of the state,'" Estades-Negroni v. CPC Hosp. San Juan Capestrano, 412
F.3d 1, 5 (1st Cir. 2005) (quoting Blum v. Yaretsky, 457 U.S. 991, 1005 (1982)). This
is a demanding standard, and the plaintiff has the burden to meet it. See Perkins, 196
F.3d at 19.
“Here it is clear that NREIS failed to meet its burden. And the district court's
ruling, which involved no analysis of whether REBA's filing of a lawsuit and
advocacy of a position in court was traditionally and exclusively reserved to the state,
was in error.
“[Applicable Massachusetts law] does not delegate to private actors functions that
are traditionally "exclusively reserved to the State." Id. (emphasis in original). It
does nothing more than grant bar associations, along with three or more members of
the Massachusetts bar, the attorney general, and district attorneys, standing to bring
suit enforcing the unauthorized-practice-of-law statute. Mass. Gen. Laws ch. 221, §
46B. An action undertaken by a private party does not become state action merely
because the action is authorized by state statute. Flagg Bros., Inc. v. Brooks, 436
U.S. 149, 164-66 (1978) (holding that the defendant warehouseman's sale of goods
pursuant to a statute authorizing self-help was not state action); Estades-Negroni, 412
F.3d at 6.
“The Commonwealth, as a matter of policy, chose to give bar associations a
defined role in bringing court actions to seek a judicial determination whether the
challenged actions constitute the unauthorized practice of law. But that role was a
limited one. Section 46B grants the bar association itself no power to make a
determination as to whether the challenged activity is the unauthorized practice of
law. REBA could not itself determine whether its interpretation was correct, nor
could it enforce its interpretation. Thus, while defining what is the unauthorized
practice of law is the exclusive function of state government, cf. Goldfarb, 421 U.S.
at 792, that is not what is at issue here. (Citations omitted)
“What is at issue--the bringing of a lawsuit to obtain a declaration as to legality--
is far from an exclusive function of government. (Citations omitted) REBA is not an
integrated bar, nor is it a Massachusetts state agency. "That a private entity performs
a function which serves the public does not make its acts state action." Rendell Baker
v. Kohn, 457 U.S. 830, 842 (1982). Nor is there another statute giving REBA
enforcement powers. Statutes restricting standing do not thereby transform those
granted standing into government actors. . . .
“In addition, because REBA is not a state actor, but a private actor, REBA itself
cannot have violated the dormant Commerce Clause. The dormant Commerce Clause
is addressed to actions by states. Or. Waste Sys., Inc. v. Dep't of Envtl. Quality, 511
U.S. 93, 98 (1994) ("[T]he [Commerce] Clause has long been understood to have a
23
'negative' aspect that denies the States the power unjustifiably to discriminate against
or burden the interstate flow of articles of commerce."); Family Winemakers of Cal.,
592 F.3d at 4 n.1. For this reason as well, the dormant Commerce Clause claim based
on REBA's filing of the lawsuit should have been dismissed.”
See 1st Circuit Opinion (http://yourslingshot.files.wordpress.com/2011/01/1st-circuit-coa-
opinion-reversing-district-court-reba-v-nreis1.pdf).
In North Carolina, and similar to Massachusetts, bar associations have similar statutory
authority to make complaints alleging UPL to the State Bar and to local district attorneys who
are statutorily bound to prosecute UPL violations in accordance with Chapter 84 of the General
Statutes. Whereas the State Bar might be viewed as a “state actor” in efforts to interpret or seek
an interpretation that NREIS’s business practices constitute illegal UPL, based on the holding of
the 1st Circuit in REBA v. NREIS, the North Carolina Real Estate Lawyers Association would
not suffer from the same limitation. Rather, like REBA in Massachusetts, it is arguable that
RELANC would be free to bring actions seeking to enjoin those companies violating Chapter 84
prohibitions against UPL without running afoul of violations of the dormant commerce clause of
the United States Constitution in accord with the 1st Circuit’s ruling in REBA v. NREIS. See 1
st
Circuit Opinion. (http://yourslingshot.files.wordpress.com/2011/01/1st-circuit-coa-opinion-
reversing-district-court-reba-v-nreis1.pdf).
How RELANC Can Make a Positive Impact for Change for the Benefit of Consumers
The flexibility as an advocate which sets RELANC apart from the Bar Association and as
a valuable ally to the Real Property Section in pursuing the goals and interests of real property
practitioners can help make RELANC a formidable player statewide. Further, RELANC’s
freedom from restrictions on “state actors” to seek interpretations of state law to prevent illegal
closing shops from engaging in UPL within North Carolina, in a manner similar to that found to
exist in REBA in Massachusetts, gives this newly formed trade association a powerful role to
play in efforts stop the abuses of non-attorneys closing real estate transactions to the detriment of
consumers.
Previously, the State Bar and other state actors were viewed as being paralyzed by the
threat of costly litigation with the Federal Trade Commission and Department of Justice claiming
that any State Bar action to prohibit lay persons closing real estate transactions would violate the
Constitution. As set forth clearly in the REBA v. NREIS matter before the 1st Circuit, trade
associations such as REBA and RELANC are uniquely positioned to bring these issues into court
in accordance with their First Amendment rights to petition the government to determine and
resolve contested issues of law, including but not limited to whether or not applicable state law
prohibiting UPL proscribes non-attorneys from engaging in the practice of conveyancing and
closing real estate transactions on behalf of consumers in their respective states. As such,
RELANC offers North Carolina real estate attorneys who are concerned regarding the substantial
damage being caused to our consumer-clients a distinct value-added function that neither the Bar
Association nor the State Bar can effectively provide. Just as important, at the same time
RELANC can also complement the services and functions that these organizations serve in
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supporting the practice of law and promoting increased consumer protection to persons
transacting real estate within this State.
Finally, where both the Real Property Section of the Bar Association and the State Bar
are limited in the manner they can raise funds and the manner in which funds are spent,
RELANC can and has been formed to allow for much more flexibility to raise funds to assist its
mission which is stated in the RELANC website as follows:
“The Real Estate Lawyers Association of North Carolina, Inc. (RELA) is committed
to engaging in energetic advocacy on behalf of real estate attorneys in the State of
North Carolina.
“Our focus includes research, educational activities, and promotional and advertising
campaigns regarding consumer protection abuses and practices which destabilize
communities and are harmful to North Carolina citizens, their assets, real property
owners, the financial industry, and the State of North Carolina.
“We also are committed to pursue policies, laws and regulations at local, State and
Federal levels to combat, prevent, and seek compensation from persons or entities
which engage in practices harmful to the client-consumers represented by North
Carolina real estate attorneys.”
Based on these principles, and with the support of real estate and consumer protection
professionals, RELANC hopes to help make a difference and improve the experience of
consumers involved in real estate transactions so as to increase confidence in the real estate
closing industry which has suffered greatly as a result of the problems encountered from
unscrupulous non-attorney vendors seeking to supplant the traditional consumer protection role
attorneys serve in real estate closings.
V. CONCLUSION
Over the past decade the unauthorized practice of law may have appeared to be a growth
industry with the proliferation of closing shops, document preparation companies, online do-it-
yourself kits, and the like. Unfortunately, this trend is likely to continue unless organizations
such as RELANC can help protect consumers in real estate transactions by engaging in
aggressive advocacy and following the model set by REBA in Massachusetts in taking action to
shut down vendor management companies engaging in handling real estate closings and
conveyancing within North Carolina in violation of Chapter 84 prohibitions against UPL. As
always, once regulators figure out and proscribe or shut down unlawful conduct which may pose
hazards for consumers, the market attempts to squeeze out a new variant or scheme by which
some bad actors will seek to exploit or take advantage of others in order to make money.
There are simply too few resources at the Bar Association, the State Bar, and in local and
state law enforcement agencies to “wack all the moles” as they pop up. RELANC can help fill
the voids and lead to more effective efforts across the board to protect North Carolina
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consumers. There are professionals at the State Bar and the Bar Association that each day work
on behalf of members of the Bar and the general public to safeguard the trust which the public
has entrusted to this profession to regulate itself and to identify and stop the bad actors which
could jeopardize the practice of law and consumer confidence in the provision of legal services.
The work of the State Bar Council Members who sit on the AP and Ethics Committees, and all
other committees of the State Bar, deserve our appreciation and thanks for all the hard work they
do to assist us in our practice and to protect consumers across North Carolina. Nevertheless,
having a separate private trade association such as RELANC that has more flexibility and
potential to raise funds to battle abuses by lay closing shops is in the interest of real estate
attorneys and all the citizens of North Carolina.