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:

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“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

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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

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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);

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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

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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

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“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;

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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

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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

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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.

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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

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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.

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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

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'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.