Can a title company owned by a bank prepare closing documents and charge for them using in-house attorneys, and have nonlawyer branch staff conduct the closings?

Plain-English summary

A bank-owned title company (Corporation B, a subsidiary of a mortgage banking company) proposed to write title insurance and provide real estate closing services for its affiliate's customers in Alabama. Its plan was to prepare all closing documents (deeds, conveyances, mortgages) under the supervision of two in-house attorneys, transmit them to branch personnel statewide, and have nonlawyer branch staff obtain signatures, notarize, and assist in document preparation, stopping the closing to call the home-office attorneys if a legal question arose. The company asked whether this would be the unauthorized practice of law, whether it was profiting from its attorneys practicing law, and what other issues the Bar saw.

The Disciplinary Commission answered that there is no unauthorized practice inherent in document preparation as long as all legal documents are prepared by licensed attorneys or under their direct supervision; where nonlawyers assist, the supervising attorney must review every aspect of the document and be professionally responsible for the final product, and a mere cursory reading of completed documents is not sufficient supervision. The extent of any nonlawyer involvement must be disclosed to customers. Title opinions, reports, or certificates the company charges for can only be issued by licensed attorneys; nonlawyers may assemble information from public records, but only an attorney can draw legal conclusions about a title (an abstract used only in-house to decide whether to insure may be drafted by nonlawyers).

On the charging question, the opinion concluded that if Corporation B charges for preparing legal documents used at a closing, two problems arise: the company engages in the unauthorized practice of law because its in-house counsel are employees and the entity is charging and collecting for legal work traditionally handled by lawyers, and the lawyers doing the work are splitting legal fees with an entity not organized for the practice of law, violating Rule 5.4(a). Citing Coffee County Abstract and Title Co. v. Norwood, 445 So. 2d 852 (Ala. 1983), the opinion explained that nonlawyers may conduct the actual closings but may perform only ministerial functions, must never give or attempt to give legal advice, and should give a disclaimer of their inability to provide legal advice. In-house counsel owe their first allegiance to the company and have no attorney-client relationship with customers, so they cannot give legal advice to third parties when the company has an interest in the transaction. The Commission concluded the proposal involves the unauthorized practice of law when the company prepares legal documents and gives legal advice at closings for pecuniary gain, and that having in-house lawyers participate does not cure the problem because the company is making money from the practice of law.

Currency note

This opinion was issued in 1994, before the 2002 Ethics 2000 revisions to the ABA Model Rules of Professional Conduct and Alabama's subsequent amendments to its Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a title company prepare real estate closing documents?

A: Per the opinion, yes, but only if all legal documents are prepared by licensed attorneys or under their direct supervision, with the supervising attorney responsible for the final product; a cursory review is not enough.

Q: Can the company charge for preparing those documents?

A: The opinion concluded that charging for the legal work is the unauthorized practice of law and causes the in-house lawyers to split fees with a nonlawyer entity in violation of Rule 5.4(a).

Q: Can nonlawyer staff conduct the closing itself?

A: Per the opinion, nonlawyers may conduct closings but may perform only ministerial functions, must never give legal advice, and should disclaim any ability to give legal advice, citing Coffee County Abstract & Title Co. v. Norwood.

Q: Does using in-house attorneys cure the problem?

A: No. The opinion concluded that having in-house lawyers participate does not cure the violation, because the company is still making money from the practice of law.

Background and rules framework

The opinion interprets Rule 5.4(a) of the Alabama Rules of Professional Conduct (Model Rule 5.4, professional independence; no sharing of legal fees with a nonlawyer) together with Alabama Code § 34-3-6 (unauthorized practice of law) and Rule 1.5(a)(3) (customary local fees). It applies the Alabama Supreme Court's decision in Coffee County Abstract & Title Co. v. Norwood on what closing functions a nonlawyer title company may perform.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 / Ala. R. Prof. C. 5.4(a) (no sharing of legal fees with a nonlawyer)
• Ala. R. Prof. C. 1.5(a)(3) (fee customarily charged in the locality)

Statutes:

• Ala. Code § 34-3-6 (1975) (unauthorized practice of law; § 34-3-6(3) on abstracts and title insurance)

Cases:

• Coffee County Abstract & Title Co. v. Norwood, 445 So. 2d 852 (Ala. 1983) (nonlawyer title company may conduct closings limited to ministerial steps)

See also

• AL Ethics Op. 1994-03: collection agency fee splitting
• AL Ethics Op. 1995-02: title-company in-house fees
• AL Ethics Op. 1992-13: fee splitting with a nonlawyer

Source

• Landing page: https://www.alabar.org/office-of-general-counsel/formal-opinions/1994-01/
• Original PDF: https://www.alabar.org/assets/2019/02/RO-94-01.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ETHICS OPINION

RO-94-01

In-house counsel for banking company conducting real estate closings-division of fees with nonlawyers and possible unauthorized practice of law problems

QUESTION:

Re: "Corporation A's Ownership of Corporation and Activities Stemming Therefrom

Pursuant to our phone conversation of January 3, 1994, I am hereby setting forth a query regarding the above-referenced corporations and their attorneys on staff being in compliance with Alabama Code of 1975 §34-3-6 and the Alabama Rules of Professional Conduct. I will set forth the corporate structure of the title company and the title company's proposed business plan as it pertains to Alabama before setting forth the particular queries.

Corporation B is the wholly owned subsidiary of Corporation A. Furthermore, Corporation A is the wholly owned subsidiary of ABC Bank which is a wholly owned subsidiary of ABC Bankshares, Inc. Corporation A is a mortgage banking company which originates and services first mortgages predominately in the southeast. In connection with the origination of the loan, a closing occurs whereby the mortgagor executes various documents to effectuate the assurance of the validity of the debt and security for the debt. Currently, Corporation A uses various approved closing agents throughout the State of Alabama to close its mortgage transactions. Through the acquisition of Corporation B, it is desirous to perform the same function that third-party closing agents have customarily performed in the past. Corporation B is a Tennessee corporation qualified to do business in Alabama and Georgia. The primary purpose is to issue title insurance to an affiliated company, XYZ Bank, and its mortgagors. From its original offices in Tennessee, Corporation B has set up an office in Anytown, Alabama for the purposes of expanding the corporation into Alabama. Both the President and Assistant Legal Officer of Corporation B are licensed attorneys in the State of Alabama.

The proposed business plan for Corporation B as it pertains to Alabama will be to write and issue title insurance for Corporation A mortgages for the markets in several Alabama cities. Such title insurance policies will cover originations, refinances, and foreclosures. As of this date, no outside or third-party business is contemplated for purposes of issuing title insurance.

In addition to the above title insurance business, Corporation B would like to provide real estate purchase/sale and refinance closing services to Corporation A's customers. The business plan as of this point contemplates the preparation of all documents needed to conduct real estate closings within the State of Alabama. Such documents would include deeds, conveyances and mortgages. The preparation of all documents in connection with the closing would be conducted in Anytown, Alabama under the supervision of the two licensed attorneys with Corporation B and transmitted electronically to Corporation B branch personnel throughout the state. In addition, Corporation B will issue the title insurance on the subject property upon authority by the purchaser of such insurance.

The branch personnel's responsibilities will be mainly to obtain the signatures of the buyers and sellers within the transaction and to notarize such signatures if necessary. Furthermore, branch personnel will assist in the preparation of documents which would not affect or relate to secular rights, as provided in Code of Alabama 1975 §34-3-6(3). That is, non-lawyer personnel for Corporation B will (or could) assist in 'preparing abstracts of title, certifying, guaranteeing or insuring titles of real property.' Moreover, closing services will be strictly for Corporation A customers only and no third-party services are contemplated at this time. In the event of questions by the parties during the closing which would require an answer giving legal advice or expressing opinions as to the effect of the legal documents, the Corporation B branch personnel will be under strict instructions to stop the closing and to call the attorneys in the home office for direction and/or a response. Furthermore, pursuant to the opinion expressed in the Coffee County case, preparation of documents and/or choice of forms to be used in closing such transaction will be supervised by the attorneys on staff at Corporation B. Revenues generated by such activity will be from title insurance premiums and closing fees. Title insurance premiums charged will be customary to the guidelines set forth by the title insurance underwriters. Closing fees will be consistent with Alabama Rules of Professional Conduct Rule 1.5(a)(3), in that such fees will be charged which are customarily charged in the locality for similar legal services.

The issues presented to you for an opinion include:

a. Under the logistical scenario set forth above, would Corporation B, based on branch personnel activities, be conducting the unauthorized practice of law?

b. Per my conversation with you, is Corporation B as a corporation, profiting from its attorneys practicing law? If so, what statute or rule would it be violating?

c. What additional clarifications would you need to express an opinion on this matter?

d. What, if any, additional issues does the Alabama State Bar see in this scenario which would question whether Corporation B is in compliance with the Alabama Code. Would the attorneys on the staff of Corporation B be in violation of the Alabama Rules of Professional Conduct or otherwise be subject to imposition of discipline by the Alabama State Bar."

ANSWER QUESTION A:

As long as all legal documents used in closings are prepared by licensed attorneys or under their direct supervision, there is no unauthorized practice of law inherent in this aspect of your proposed operations. However, if these documents are, in some fashion, prepared with the assistance of nonlawyers, the supervising attorney must review every aspect of the document and be professionally responsible for the final product. A mere cursory reading of already completed documents would not be sufficient direct supervision. This would apply to documents drafted in whole and pre-printed legal forms. To the extent legal documents are prepared with the assistance of nonlawyers, the extent of their involvement must be disclosed to customers.

Title opinions, reports, or certificates for which Corporation B charges the customer can only be issued by licensed attorneys. While nonlawyers may assemble information from public records, only an attorney can draw legal conclusions about the status of a particular title. If a title abstract is only being used in house by Corporation B in making a decision to insure, then nonlawyers can draft them.

ANSWER QUESTION B:

If Corporation B charges for the preparation of legal documents to be used at a real estate closing, two problems arise. First of all, Corporation B is engaging in the unauthorized practice of law because in-house counsel are employees of the Corporation (B) and it is the entity which is charging and collecting for legal work traditionally handled by private lawyers and law firms. Similarly, the lawyers doing the work are splitting legal fees with an entity not organized for the practice of law. This violates Rule 5.4(a).

ANSWER QUESTIONS C & D:

Under Coffee County Abstract and Title Company v. Norwood, 445 So.2d 852 (Ala. 1983), nonlawyers can conduct the actual closings. A layman may not take the place of an attorney and must only perform ministerial functions. Under no circumstances should a layman conducting a closing give or attempt to give "legal advice" to a customer. A disclaimer should be given about the layman's inability to provide any legal advice. In his special concurring opinion in Coffee County, Chief Justice Torbert stated:

"I agree with the Tennessee Court's handling of this issue. If the parties to the transactions raise a legal question at the closing, the title company should stop the proceeding and instruct them to consult their attorneys. As long as the closing involves only those steps outlined above a title company should be permitted to conduct closings, and such conduct is the unauthorized practice of law." (emphasis added)

You apparently envision that when a legal question comes up at a closing a call will be placed to in-house counsel at Corporation B's home office "for direction and/or a response". Counsel employed by Corporation B owe their first allegiance to that company. In-house counsel will have no attorney/client relationship with the customers. Corporation B's legal employees cannot give legal advice to third parties when Corporation B has an interest in the transaction.

In conclusion, your proposal involves the unauthorized practice of law when Corporation B prepares legal documents and gives legal advice at closings for pecuniary gain. Having in-house lawyers participate in the process does not cure this problem. Corporation B is making money from the practice of law.

MLM/vf

1/19/94