Massachusetts Bombshell Court Decision: Attorneys Must Participate and Conduct Real Estate Closings

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EBA v. NREIS Ruling: Massachusetts Real Estate Attorneys Must Not Only Conduct Closings But Take “Substantive Participation” In Residential Transactions  by RICH VETSTEIN:

The long awaited ruling from the Massachusetts Supreme Judicial Court in case of Real Estate Bar Association (REBA) v. National Estate Information Services (NREIS) has just come down. The ruling can be read below. The net effect of the Court’s ruling is to reaffirm Massachusetts attorneys’ long-standing role to oversee the closing process and conduct closings.

The court noted that:

The closing is where all parties in a real property conveyancing transaction come together to transfer their interests, and where the legal documents prepared for the conveyance are executed, often including but not limited to the deed, the mortgage and the promissory note. The closing is thus a critical step in the transfer of title and the creation of significant legal and real property rights. Because this is so, we believe that a lawyer is a necessary participant at the closing to direct the proper transfer of title and consideration and to document the transaction, thereby protecting the private legal interests at stake as well as the public interest in the continued integrity and reliability of the real property recording and registration systems.

Massachusetts also requires that real estate attorneys play a role in title certification as well:

Certifying excellent, clear and marketable title is the fundamental function of the real estate attorney in Massachusetts, and required by law for buy transactions under Chapter 90, section 70.

With respect to the preparation of deeds and other documents ancillary to a real estate transaction, the court held “because deeds pertaining to real property directly affect significant legal rights and obligations, the drafting for others of deeds to real property constitutes the practice of law in Massachusetts.” It has long been the position of the NYS real estate bar that conducting real estate closings constitutes the practice of law but, unfortunately, the sincere commitment and leadership at the highest levels of the NYS Bar Association had been sorely lacking.  One NY real estate attorney noted that “the lack of fiduciary duty or duty of loyalty of mortgage originators and many others in the mortgage -settlement game has been observed as a intregal piece of the sub prime disaster, hence the “huge” Bar is finally looking to see if they had/have a role in protecting the public from miscreants that target the elderly, the down trodden and already economically oppressed via “settlement” schemes that obviate the watchful eyes of counsel.”

This premise is in direct contradiction to the position taken by many states, including Arizona which saw fit to amend its state constitution to allow real estate brokers to draft such real estate documents, including mortgages, deeds, assignments etc.  Further the United States Department of Justice has been lobbying for years and filing amicus briefs to persuade states to allow laypeople to conduct real estate closings for the “protection of consumers”.  Obviously, this position has had the opposite effect.

I firmly agree that the removal of attorneys from the real estate closing process was a major contributing factor to the crash of the Housing Market.  In states where attorney closings are not required or are customary, the rate of foreclosure tends to be far higher:

Top Ten States With the Highest Foreclosure Activity (January 2011):

1. Nevada
2. Arizona
3. California
4. Idaho
5. Utah
6. Michigan
7. Georgia
8. Illinois
9. Florida
10. Colorado

I have yet to meet a real estate agent who can clarify, in detail, the terms of a negative amortization option arm loan.  Yet, these toxic loan products were handed out, en masse, from 2005-2007.  Borrowers just had no thought what these loans really entailed because they were questioned to sign these loan documents by lay people.   I really represented a young couple at closing that was about to sign loan docs for this type of loan product.  After practically during a map and showing them what their mortgage payment would be when the loan would recast (which on this transaction would have been somewhere in the second year) and that they would be unable to refinance because of a three year prepayment penalty, they wisely chose not to proceed with the closing. These loans are now set to reset to full amortization (because they hit that magic 110% mark) and will cause a new wave of defaults and foreclosures.  Take a look at the following chart and note the location of the at-risk cities:

Hopefully, Massachusetts is one of the first of many states that will finally come to the conclusion that attorneys need to play a significant role in real estate transactions for the protection of both public and private interests.

Related posts:

1. Jack of All Trades and Master of None: Attorneys Wearing Multiple Hats in a Transaction
2. Mortgage Assignments are Not the Real Estate Investor’s Dream!
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
4. Real Estate Law Update: New York State Decisions of Interest
5. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry