In October, 2019, a law establishing real estate closings as the practice of law went into effect. In April 2020, the Connecticut Bar Association released a whitepaper providing guidance on which aspects of the real estate closing were considered the practice of law.
“Effective Oct. 1, 2019, Connecticut law requires that attorneys admitted in Connecticut in good standing conduct real estate closings,” the paper began. “The newly enacted statute, Public Act 19-88, leaves some terms undefined. This memorandum considers the individual tasks that must be undertaken by a Connecticut licensed attorney to complete a residential real estate transaction (i.e. ‘conduct’ a ‘closing’). Additionally, this memorandum considers whether the attorney may delegate such tasks and, if so, what level of supervision is required from the attorney?”
The whitepaper then defined three key terms: real estate closing, attorney and conduct.
It noted that Black’s Law Dictionary defines a real estate closing as, “The final meeting between the parties to a transaction, at which the transaction is consummated; esp. in real estate, the final transaction between the buyer and seller, whereby the conveyancing documents are concluded and the money and property transferred. Also termed settlement.”
It noted that in purchase and sales transactions, the parties meet to exchange documents and disburse funds or arrange for the proper delivery of the required documents and the proper disbursements of funds. Refinances are different, in that the final meeting takes places as two separate events – the signing of the documents by the borrower and the disbursement of loan proceeds after the required rescission period.
“Nevertheless, even in the absence of a second ‘meeting,’ the ‘closing’ under the act should be understood to mean both the meeting with the borrowers whereby the conveyance documents are executed and the subsequent disbursement of the funds,” the whitepaper stated.
It noted that the term attorney is clearly defined in the statute as a person “who has been admitted as an attorney in the state under the provisions of section 51-80 of the general statutes and has not been disqualified from the practice of law due to resignation, disbarment, being placed on inactive status or suspension.”
The plain meaning of the term “conduct” is not clear and unambiguous and must be determined by reference to other statutes and by the legislative history of the law.
“Given that P.A. 19-88 makes it a violation of the Unauthorized Practice of Law statute, Conn. Gen. Stat. §51-88(a)(8), for a person who violates subsection (a) to ‘conduct’ a real estate closing, it is logical to conclude that the legislature intended to incorporate the definition of the practice of law, as set forth in Practice Book §2-44A, into the meaning of ‘conduct.’ With that in mind, conducting a closing means, at least in part, ministering to the legal needs of e.g., the client seller by applying legal principals and judgment to the client’s objectives; drafting any necessary legal documents; and giving advice or counsel to the client, as needed, regarding the preparation, evaluation or interpretation of the documents or procedures involved in transferring property, perfecting legal interests and securing obligations,” the whitepaper stated.
It further noted that the term conduct under P.A. 19-88 also includes activities which are not the practice of law with respect to closings.
The paper then examined each of the tasks that must be performed to complete a real estate transaction.
Given that the definition of a real estate closing under P.A. 19-88 is “the final meeting between the parties to a transaction, at which the transaction is consummated,” the paper stated it does not seem that “the General Assembly intended to include title searching as part of a real estate closing.”
It noted that the issuance of title insurance is not the practice of law, as “the practice of law does not include tasks which the legislature has authorized lay persons to perform.”
Turning to the task of preparing closing documents, the whitepaper noted: “The act of preparing documents does not meet the definition of a real estate closing, which is a meeting; however, such acts may constitute the practice of law pursuant to Practice Book § 2-44A(a)(3), particularly if those documents effectuate a change in ownership of a property (i.e. deed). Parties are generally free to prepare their own documents and the Practice Book provides a carve-out to the general prohibition for the selling of legal document forms previously approved by a Connecticut lawyer. supra. at (b)(1). Most lenders use the services of two document production providers for their loan packages — Ellie Mae and DocMagic. Presumably both companies have employed Connecticut lawyers to review their pre-drafted forms, and, when these forms are sold to lenders who fill them in with borrower names and other loan terms, there is no unauthorized practice of law. Verifying the factual assumptions contained herein is beyond the scope of this memorandum.
“The closer question is whether calculating the amounts due to pay off secured debts through the closing and adding those amounts to a settlement statement constitutes the practice of law. Typically, lenders prepare their own Closing Disclosures with respect to their fees, but they usually ask the settlement agent to calculate amounts due to secured creditors and to calculate the recording costs. Making such calculations arguably requires more than merely documenting the transaction because some interpretation is involved. On the other hand, in practice, secured creditors generally provide written demand letters indicating the amounts due through the disbursement date, and recording calculations can be made by simple reference to readily available charts. As such, this function would likely not be considered the practice of law. However, where the lender or settlement agent will estimate the pay off in accordance with Conn. Gen. Stat. §49-8a (b)(2), an attorney should perform that function to avoid the unauthorized practice of law, as much more judgment is involved in calculating the estimate than copying the amounts shown on a demand letter,” the whitepaper continued.
It noted that the statute makes clear that a Connecticut attorney must preside over the signing of closing documents. The legislative history makes clear that a lay person may not preside over a closing.
It stated that the act has no impact on a notary’s legal right to take an acknowledgment with respect to a real estate transaction. However, while a paralegal may notarize documents, “the attorney must be present to oversee the transaction.”
“Nothing in this debate indicates the paralegal may go beyond notarizing documents; as the discussion above indicates, were the paralegal to begin explaining documents or directing the format of the borrower’s signatures, he would be conducting the closing in violation of the act. Were an attorney to sanction this type of behavior by the notary by purporting to ‘oversee’ him without being present, the attorney would be aiding and abetting the unauthorized practice of law in violation of Rules of Professional Conduct, Rule 5.5,” the whitepaper states.
“Given that conducting a closing means to direct or take part in the operation or management of; to direct the performance of; or to lead from a position of command with respect to the closing, it is clear the attorney must be present during the signing to provide such direction. The question thus becomes: what form must that presence take?”
The paper looked at how Georgia and South Carolina have answered that question, concluding, “While it is unclear exactly what form the attorney’s presence at the closing must take, it is certain that the Connecticut attorney must actively oversee the closing during the signing process by explaining the documents and the process throughout.”
The new law prohibits witness-only closings, the whitepaper said, noting, “The purpose of P.A. 19-88 is to protect the public from consummating real estate transactions without access to a trained professional who can offer advice and counsel with respect to the terms and conditions of that transaction. An attorney who conducts a closing has an ethical obligation to be fully informed as to the facts and circumstances preceding the closing, the sufficiency of the procedures followed to arrive at the point of signing and the plan to complete the transaction after the execution of the documents. Merely showing up with a set of documents, where no Connecticut attorney has reviewed the title, the closing statement or any other aspect of the closing, does not comply with the attorney’s obligations of diligence and competence. Nor is it acceptable for the attorney to ship the documents off to a lay person without assurance that a Connecticut attorney will be responsible for the disbursement and recording.”
Mail-away closings are permitted, recognizing that in certain instances it is not possible for the attorney to be in the same location as their client.
“In such cases, the attorney should employ procedures to ensure that the client has adequate instruction as to how and where to sign the documents, and wherever possible, utilize technology that will allow the client to communicate directly with the attorney during the signing so that she can explain the documents and answer questions,” the whitepaper stated.
It then discussed whether the disbursement of loan proceeds is the practice of law.
“While writing out checks and providing wiring instructions to a bank are certainly ministerial in nature and can be delegated to non-attorney assistants, P.A. 19-88’s definition of a real estate closing encompasses the transfer of the final funds,” the paper stated. “Since the attorney must conduct the closing, and since his oversight should be constant and direct, the lawyer must actively supervise the non-attorney assistant in the ministerial functions that are required to disburse the funds.”
The whitepaper concluded that the recording of real estate documents is not the practice of law. However, “the definition of the practice of law contained in Connecticut Practice Book § 2- 44A(5)(b) includes ‘... the evaluation or interpretation of procedures to implement such transaction, where such transaction, documents, or procedures affect the legal rights, obligations, liabilities or interests of such person.’
“Given that part of conducting the closing is practicing law with respect to the closing, and given that part of that practice is to evaluate the procedures to implement the transaction, the attorney has an ethical duty to oversee the recording process, because recording the documents properly is essential to perfecting the legal rights of the client,” the paper stated, citing Rules of Professional Conduct Rules 1.1 and 1.3.
In looking at the ethical considerations, the paper concluded that because conducting a closing is, at least in part, the practice of law, an “attorney must minister to the legal needs of the client during the closing by providing advice and counsel and by offering an evaluation and interpretation of the closing documents and the procedures for completing the transaction.”
“The attorney’s duty of competence and diligence requires that the attorney, in offering her evaluation of the processes, should be familiar with the entire set of tasks necessary to complete the client’s objectives, all the way from title searching through the issuance of title insurance, including the steps necessary to clear title, the document preparation – including calculation of the payoff amounts shown on the closing statement – the disbursement of the proceeds and the recording process,” the whitepaper stated.
“In conclusion, Public Act 19-88 has affected significant changes to the residential closing process in Connecticut, especially with regard to the residential refinance process,” the whitepaper stated. “As set forth above, attorneys must now actively supervise the document execution, the disbursement of the closing proceeds and the recording of the documents necessary to perfect title. During the signing, the attorney should explain the conveyancing documents and loan documents to her client, answer the client’s questions and ensure the documents are properly executed, witnessed and notarized. The attorney should be sufficiently familiar with the title searching and title insurance processes to provide an evaluation of their adequacy. The attorney has an obligation to safeguard client funds and directly supervise the persons handling those funds. Finally, the attorney must ensure that all documents necessary to complete the transaction are properly recorded.”