Can a nonlawyer handle a residential real estate closing in North Carolina, and what closing tasks may a nonlawyer perform?

Plain-English summary

The opinion addressed whether a nonlawyer may handle a residential real estate closing for one or more parties to the transaction. It concluded a nonlawyer may not. The opinion described a closing as a collection of functions, most of which constitute the practice of law: reviewing the purchase agreement, abstracting and opining on title, preparing legal documents such as deeds and deeds of trust, interpreting documents that affect parties' legal rights, resolving title problems, and overseeing recordation and disbursement. Under N.C. Gen. Stat. 84-2.1 and 84-4, a nonlawyer who is not working under the direct supervision of an active State Bar member engages in the unauthorized practice of law by preparing legal documents, abstracting or passing on titles, or advising on legal rights or obligations, and under 84-5 a business entity may not provide legal services to its customers even through employed attorneys.

The opinion then set out a non-exclusive list of specific functions that constitute the practice of law and therefore may not be performed by an unsupervised nonlawyer in a closing, including abstracting or opining on title, explaining the legal effect of title items, advising on legal rights created by the purchase agreement or loan documents, drafting or selecting legal documents, resolving disputes affecting legal rights, and determining that conditions for recordation or disbursement have been met.

The opinion also concluded, however, that a nonlawyer who does not engage in those activities may perform two limited functions: presenting and identifying the documents needed to complete the closing, directing the parties where to sign, and ensuring proper execution; and receiving and disbursing the closing funds. Performing those administrative or ministerial tasks does not necessarily require legal judgment, and execution of documents and disbursement of proceeds can be accomplished by mail or electronically. Even so, the opinion concluded a nonlawyer performing those tasks is not "handling the closing," because a lawyer must provide the necessary legal services, and the nonlawyer may not advertise or represent that it will handle the closing, provide the associated legal services, or represent any party.

In practice

Under this opinion, and the statutes it applies as they stood at the time, a nonlawyer who is not supervised by a licensed North Carolina lawyer may not perform the legal components of a residential closing, including title work, document drafting, and advising parties on their legal rights. The opinion treats those functions as the practice of law under N.C. Gen. Stat. 84-2.1, 84-4, and 84-5. It identifies a narrow set of ministerial tasks a nonlawyer may perform without supervision (presenting documents for execution and receiving and disbursing funds), while concluding that the nonlawyer still may not hold itself out as conducting the closing. The opinion notes that the General Assembly and Supreme Court make the ultimate determination of what constitutes the practice of law, so verify the current statutes and any later authorized-practice guidance before relying on these line-drawings.

Common questions

Q: Can a nonlawyer conduct a residential real estate closing?

A: No. The opinion concluded that most closing functions, including title work, document preparation, and advising on legal rights, are the practice of law that an unsupervised nonlawyer may not perform.

Q: What closing tasks may a nonlawyer perform?

A: The opinion concluded a nonlawyer may present and identify the documents to be signed, direct the parties where to sign and ensure proper execution, and receive and disburse the closing funds, so long as it does none of the legal functions described in the opinion.

Q: Can a nonlawyer advertise that it will handle the closing?

A: No. The opinion concluded that because a lawyer must provide the closing's legal services and N.C. Gen. Stat. 84-5 bars nonlawyers from arranging for or providing legal services, a nonlawyer may not represent that it will handle the closing or represent any party.

Q: Does the borrower have any recourse against an unauthorized practice provider?

A: The opinion noted that N.C. Gen. Stat. 84-10 provides a private cause of action for damages and attorneys' fees against a person who engages in the unauthorized practice of law and anyone who knowingly aids and abets it, alongside the State Bar's and the criminal system's oversight.

Background and rules framework

The opinion interprets North Carolina's statutes defining and restricting the practice of law, principally N.C. Gen. Stat. 84-2.1 (definition of the practice of law), 84-4 (prohibition on unauthorized practice and holding out), and 84-5 (prohibition on business entities providing legal services), in the context of residential real estate closings. In the Model Rules framework, the subject matter corresponds to Model Rule 5.5 (unauthorized practice of law); the opinion itself rests on the statutes rather than on a numbered Rule of Professional Conduct.

Citations and references

Statutes:

• N.C. Gen. Stat. 84-2.1: definition of the practice of law
• N.C. Gen. Stat. 84-4 and 84-5: prohibitions on unauthorized practice and on entities providing legal services
• N.C. Gen. Stat. 84-10: private cause of action for damages from unauthorized practice
• N.C. Gen. Stat. 45A-1 et seq.: Good Funds Settlement Act
• N.C. Gen. Stat. 58-26-1: attorney opinion required for title insurance

Cases:

• State v. Pledger, 257 N.C. 634, 127 S.E.2d 337 (1962), party with a primary interest may prepare documents to effectuate the transaction
• Duke Power Co. v. Daniels, 86 N.C. App. 469, 358 S.E.2d 87 (1987), unauthorized practice
• Gardner v. North Carolina State Bar, 316 N.C. 285, 341 S.E.2d 517 (1986), unauthorized practice
• State ex rel. Seawell v. Carolina Motor Club, Inc., 209 N.C. 624, 184 S.E. 540 (1936), unauthorized practice by a corporation

See also

• NC State Bar 98 FEO 8: Witness Real Estate Closings
• NC State Bar RPC 9: House Counsel at Loan Closings
• ABA Formal Op. 506: Nonlawyer Assistants

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/authorized-practice-advisory-opinion-2002-1/

Original opinion text

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

Issue 1:

May a nonlawyer handle a residential real estate closing for one or more of the parties to the transaction?

Opinion 1:

No. Residential real estate transactions typically involve several phases, including the following: reviewing the purchase agreement for any conditions that must be met before closing; abstracting titles; providing an opinion on title; applying for title insurance policies, including title insurance policies that may require tailored coverage to protect the interests of the lender, the owner, or both; preparing legal documents, such as deeds (in the case of a purchase transaction), deeds of trust, and lien waivers or affidavits; interpreting and explaining documents implicating parties' legal rights, obligations, and options; resolving possible clouds on title and issues concerning the legal rights of parties to the transaction; overseeing execution and acknowledgement of documents in compliance with legal mandates; handling the recordation and cancellation of documents in accordance with North Carolina law; disbursing proceeds when legally permitted after legally-recognized funds are available and all closing conditions have been satisfied; and providing a post-closing final opinion of title for title insurance after all prior liens have been satisfied. These and other functions are sometimes called, collectively, the "closing" of the residential real estate transaction. As detailed below, the North Carolina General Assembly has determined specifically that only persons who are licensed to practice law in this state may handle most of these functions.

A person who is not licensed to practice law in North Carolina and is not working under the direct supervision of an active member of the State Bar may not perform functions or services that constitute the practice of law. Under the express language of N.C. Gen. Stat. §§ 84-2.1 and 84-4, a non-lawyer who is not working under the direct supervision of an active member of the State Bar would be engaged in the unauthorized practice of law if he or she performs any of the following functions for one or more of the parties to a residential real estate transaction: (i) preparing or aiding in preparation of deeds, deeds of trust, lien waivers or affidavits, or other legal documents; (ii) abstracting or passing upon titles; or (iii) advising or giving an opinion upon the legal rights or obligations of any person, firm, or corporation. Under the express language of N.C. Gen. Stat. § 84-4, it is unlawful for any person other than an active member of the State Bar to hold himself or herself out as competent or qualified to give legal advice or counsel or as furnishing any services that constitute the practice of law. Additionally, under N.C. Gen. Stat. § 84-5, a business entity, including a corporation or limited liability company, may not provide or offer to provide legal services or the services of attorneys to its customers even if the services are performed by licensed attorneys employed by the entity. See, Duke Power Co. v. Daniels, 86 N.C. App. 469, 358 S.E.2d 87 (1987); Gardner v. North Carolina State Bar, 316 N.C. 285, 341 S.E.2d 517 (1986), and State ex rel. Seawell v. Carolina Motor Club, Inc., 209 N.C. 624, 184 S.E. 540 (1936).

Accordingly, a nonlawyer is engaged in the unauthorized practice of law if he or she performs any of the following functions in connection with a residential real estate closing (identified only as examples):

1. Abstracts or provides an opinion on title to real property;

2. Explains the legal status of title to real estate, the legal effect of anything found in the chain of title, or the legal effect of an item reported as an exception in a title insurance commitment except as necessary to underwrite a policy of insurance and except that a licensed title insurer, agency, or agent may explain an underwriting decision to an insured or prospective insured, including providing the reason for such decision;

3. Explains or gives advice or counsel about the rights or responsibilities of parties concerning matters disclosed by a land survey under circumstances that require the exercise of legal judgment or that have implications with respect to a party's legal rights or obligations;

4. Provides a legal opinion, advice, or counsel in response to inquiries by any of the parties regarding legal rights or obligations of any person, firm, or corporation, including but not limited to the rights and obligations created by the purchase agreement, a promissory note, the effect of a pre-payment penalty, the rights of parties under a right of rescission, and the rights of a lender under a deed of trust;

5. Advises, counsels, or instructs a party to the transaction with respect to alternative ways for taking title to the property or the legal consequences of taking title in a particular manner;

6. Drafts a legal document for a party to the transaction or assists a party in the completion of a legal document, or selects or assists a party in selecting a form legal document among several forms having different legal implications;

7. Explains or recommends a course of action to a party to the transaction under circumstances that require the exercise of legal judgment or that have implications with respect to the party's legal rights or obligations;

8. Attempts to settle or resolve a dispute between the parties to the transaction that will have implications with respect to their respective legal rights or obligations;

9. Determines that all conditions of the purchase agreement or the loan closing instructions have been satisfied in accordance with the buyer's or the lender's interests or instructions;

10. Determines that the deed and deed of trust may be recorded after an update of title for any intervening conveyances or liens since the preliminary opinion;

11. Determines that the funds may be legally disbursed pursuant to the North Carolina Good Funds Settlement Act, N.C. Gen. Stat. § 45A-1 et seq.

The foregoing list of examples of functions that constitute the practice of law is not exclusive, but reflects a range of responsibilities and duties that involve the following: the exercise of legal judgment; the preparation of legal documents such as deeds, deeds of trust, and title opinions; the explanation or interpretation of legal documents in circumstances that require the exercise of legal judgment; the provision of legal advice or opinions; and the performance of other services that constitute the practice of law.

Issue 2:

May a nonlawyer 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?

Opinion 2:

Yes. So long as a nonlawyer does not engage in any of the activities referenced in Opinion 1, or in other activities that likewise constitute the practice of law, a nonlawyer may: (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; or (2) receive and disburse the closing funds.

Although these limited duties may be performed by nonlawyers, this does not mean that the nonlawyer is handling the closing. Since, as described in issue 1 above, the closing is a collection of services, most of which involve the practice of law, a lawyer must provide the necessary legal services. And, since N.C. Gen. Stat. § 84-5 prohibits nonlawyers from arranging for or providing the lawyer or any legal services, nonlawyers may not advertise or represent to lenders, buyers/borrowers, or others in any manner that suggests that the nonlawyer will (i) handle the "closing;" (ii) provide the legal services associated with a closing, such as providing title searches, title opinions, document preparation, or the services of a lawyer for the closing; or (iii) "represent" any party to the closing. The lawyer must be selected by the party for whom the legal services will be provided.

Notwithstanding this opinion, evidence considered by the State Bar with respect to this advisory opinion indicates that, at the time documents are presented to the parties for execution, a lawyer who is present may identify or be asked about important issues affecting the legal rights or obligations of the parties. A lawyer may provide important legal guidance about such issues, but a nonlawyer is not permitted to do so. Moreover, a consumer's retention of a licensed North Carolina lawyer provides financial protection to the consumer. The North Carolina Rules of Professional Conduct require a lawyer to properly handle all fiduciary funds, including residential real estate closing proceeds. In the event a lawyer mishandles the closing proceeds, the lawyer is subject to professional discipline, and the State Bar Client Security Fund may provide financial assistance for a person injured by the lawyer's improper application of funds. On the whole, the evidence considered by the State Bar indicates that it is in the best interest of a consumer to be represented by a lawyer with respect to all aspects of a residential real estate transaction.

The evidence the State Bar has considered suggests, however, that performing administrative or ministerial activities in connection with the execution of residential real estate closing documents and the receipt and disbursement of the closing proceeds does not necessarily require the exercise of legal judgment or the giving of legal advice or opinions. Indeed, the execution of closing documents and the disbursement of closing proceeds may be accomplished, and often have been accomplished, by mail, by email, or by other electronic means, or by some other procedure that would not involve the lawyer and the parties being physically present at one place and time. The State Bar therefore concludes that it should not be presumed that performing the task of overseeing the execution of residential real estate closing documents and receiving and disbursing closing proceeds necessarily involves giving legal advice or opinions or otherwise engaging in activities that constitute the practice of law.

Nonlawyers who undertake such responsibilities, and those who retain their services, should also be aware that (1) the North Carolina State Bar retains oversight authority concerning complaints about activities that constitute the unauthorized practice of law; (2) the North Carolina criminal justice system may prosecute instances of the unauthorized practice of law; and (3) that N.C. Gen. Stat. §84-10 provides a private cause of action to recover damages and attorneys' fees to any person who is damaged by the unauthorized practice of law against both the person who engages in unauthorized practice and anyone who knowingly aids and abets such person. In addition, non-lawyers and consumers should bear in mind that other governmental authorities such as the Federal Trade Commission, the North Carolina Attorney General, district attorneys, and the banking commissioner, have jurisdiction over unfair trade practices and violations of requirements regarding lending practices.