Attorney guidelines challenged
By Katy Stech
The Post and Courier/File
State Supreme Court Chief Justice Jean Toal
A real estate deal
Some of the key responsibilities an attorney has in a South Carolina real estate transaction, as determined by a task force:
--Certifying the title and issuing a title opinion.
--Preparing the deed.
--Approving loan closing documents.
--Conducting the closing, explaining the pertinent issues and checking for proper documentation.
--Properly recording the documents.
--Disbursing some of the closing-related funds.
Letter from the Federal Trade Commission (PDF)
Reader poll
Should South Carolina require a real estate attorney to be present at real estate closings?
- Yes 51% 183 votes
- No 48% 171 votes
354 total votes.
When a group of South Carolina lawyers came up with guidelines to help new attorneys understand the real estate closing process, they accidentally opened a can of worms.
The Federal Trade Commission, which is tasked with protecting consumers and promoting business competition, objected to the proposed guidelines and to the fact that South Carolina requires a lawyer to oversee every real estate transaction.
Few other states have similar requirements, and the rule leads to higher costs for consumers, the agency said in a letter to the state Supreme Court, which helped craft the guidelines.
"In some instances, although competence is required to provide the services in question, a license to practice law may not equate to such competence, nor may legal training be necessary skillfully to perform the services," according to the letter, which was meant to encourage the state courts system to rethink its rules.
The letter also was signed by the U.S. Department of Justice.
State Supreme Court Chief Justice Jean Toal defended the system, saying the current approach protects home buyers.
"I was shocked and disappointed to see a federal agency that is supposed to be looking after the consumer would look after the financial interest of those who want to make money on closings rather than the folks who need protection," she said this week.
South Carolina's constitution mandates that the state court system create the rules governing real estate transactions. Based on a series of lawsuits, officials have concluded that such deals must be closed by licensed attorneys.
A ruling in a lawsuit in the mid-1980s reinforced that by stating that only lawyers can certify a title, prepare and oversee closing documents and oversee the
recording of the documents, said Dave Whitener, a Columbia-based real estate lawyer who teaches at the University of South Carolina School of Law.
In other states, businesses such as title insurers and closing-service firms are allowed to handle those procedures.
Competition between those private companies and law firms keeps the price of their services low, potentially lower than the price in South Carolina, the FTC stated.
For example, a survey showed that Virginia property buyers paid $200 less when a non-attorney settled their transactions, according to the commission. And the Kentucky Supreme Court found that after title companies began operating in the state, the closing prices that real estate attorneys charged dropped.
"At the same time, because there is no evidence that non-attorneys provide lower-quality services related to real estate transactions than do attorneys, such restrictions on competition do not appear to provide consumers with any countervailing benefits," the letter stated.
South Carolina's top-ranking judge disagreed, saying attorneys provide an extra layer of protection for buyers and sellers during what is often the largest financial transaction of their lives.
Toal also said the national subprime mortgage crisis has been muted in South Carolina because of the requirement that a lawyer oversee the closing process.
"They say that what they're interested in is consumer choice, but that's the same crowd that brought about the subprime crisis because people signed for a loan that they don't understand," Toal said of the FTC.
Whitener added that there already is fierce competition for closing services in South Carolina, among lawyers. Because so many lawyers can execute the transactions, price are kept low, he said.
"There are some pretty good lawyers that will charge $450," he said. "That's not a lot of money for a tremendous amount of work."
He also said that if the rules were changed to allow non-attorneys to handle transactions, the already low price of closings would likely deter title companies from setting up shop in South Carolina.
The South Carolina Bar started a discussion about real estate closing guidelines after Lanneau Lambert Jr. took over as the group's president a year ago.
Lambert is the first real estate closing attorney to head the group in more than a decade, and he wanted to make property transactions easier to understand, Whitener said.
"One of the ideas he discussed with Toal was trying to come up with these guidelines to help out in an area of the law where there was some confusion and disagreement on what-all a lawyer needed to do in a closing," he said.
So the association assembled a five-person task force, which included Whitener, that came up with a list of guidelines explaining how South Carolina lawyers should execute a closing.
The guidelines, drafted this year, are based on rules from other sources, including state and federal legislation and recommendations from mortgage-finance giants Fannie Mae and Freddie Mac, Whitener said.
If approved, the new rules could be adopted through an order from the Supreme Court.
Toal said the proposed guidelines don't change the existing system. Rather, they are meant to explain an attorney's role in the closing process more clearly, she said.
The guidelines were posted publicly earlier this year, and the state court system sought public comment. Whitener said the FTC's response letter surprised the task force.
Toal said the letter won't change the mission of the guidelines. She added that it would take a lawsuit for state courts to change the requirement for a lawyer to execute a closing.
"This wouldn't be the vehicle that would be used to take any action about the requirement," she said.
This isn't the federal government's first attempt at changing real estate practices in South Carolina. Earlier this month the Justice Department antitrust division filed a lawsuit against an organization that runs a multiple listing service in Columbia, saying its policies keep brokers from offering consumers lower fees.
Justice resolved a similar lawsuit against Hilton Head Island's listing service last fall.
Legal aid
Need a real estate lawyer? The South Carolina Bar maintains a referral service for all types of member attorneys who are in good standing and have malpractice insurance. For more information call 1-800-868-2284 or visit www.scbar.org/public_services/find_a_lawyer .
Reach Katy Stech at 937-5549 or kstech@postandcourier.com.
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lillycollette (anonymous) says...
The Federal Trade Commission :
": although -- COMPETENCE -- is required to provide the services in question -- A LICENSE TO PRACTICE LAW MAY NOT EQUATE TO SUCH COMPETENCE -- :," according to the letter : The letter also was signed by the U.S. Department of Justice. ": -- THERE IS NO EVIDENCE -- that non-attorneys provide lower-quality services : than do attorneys, such restrictions on competition do not appear to provide consumers with any countervailing benefits,":
Now if the FTC and the U.S. Dept. of Justice would just start looking at the damnable peccadilloes of lawyers practicing family law -- where property titles are reduced to used toilet paper!
May 23, 2008 at 3:22 a.m. ( permalink | suggest removal )
SteveWynn (anonymous) says...
The lawyers in SC have their greedy little fingers involved in everything in this state. Almost every other state uses title companies, not lawyers, for real estate transactions. Don't buy their BS that it is for the consumers protection. Remember, Jean Toal is a lawyer, and so are the majority of Reps. and Sen. in this state. Of course they want to keep a good thing going for THEMSELVES. The same can be said for divorces in SC. Other states allow a 90-day No Fault divorce. If neither party is contesting the divorce; you can buy the packet at Staples, have it notarized, and file it yourself. You do not need a lawyer, or a private investigator to follow your spouse around. They're just bleeding you for money. Laws can be changed. It's not 1958.
May 23, 2008 at 3:24 a.m. ( permalink | suggest removal )
Tulane75 (anonymous) says...
The question concerns not only competence, but also accountability.
You should ask people who buy and sell real estate for a living whether they would prefer to use lawyers for closings or not.
Just because you may use non-lawyers in other states for closings doesn't mean it is a good idea to do so! Also, with respect to the comment above concerning divorce cases, one is certainly permitted to proceed without representation if one chooses. This applies to criminal cases as well!
Time will tell whether proceeding without representation was a good idea or not.
Lawyers are like parachutes. You only need them when you need them.
May 23, 2008 at 7:09 a.m. ( permalink | suggest removal )
Reader (anonymous) says...
Thomas1776 wrote, "Do we need lawyers present when we buy a $50,000.00 car? A boat?"
I'm not sure what point being made by those questions is, but no, we do not. On the other hand, buying a car or a boat does not involve even a tiny fraction of the legal work which goes into buying a house.
LillyCollette wrote, "Now if the FTC and the U.S. Dept. of Justice would just start looking at the damnable peccadilloes of lawyers practicing family law -- where property titles are reduced to used toilet paper!"
The family court system in South Carolina works perfectly well. Lilly had a bad experience herself and has apparently never gotten over it.
SteveWynn wrote, "Remember, Jean Toal is a lawyer, and so are the majority of Reps. and Sen. in this state."
Actually, I don't think that this is true (other than the part about Chief Justice Toal). The figures might have changed in the last few years, but when I had to check that statistic a few years ago, there were far fewer lawyers in the Statehouse than people think. It was not 50%.
Also, you don't need a lawyer to file for divorce in South Carolina as SteveWynn says. A person can represent himself or herself.
May 23, 2008 at 7:29 a.m. ( permalink | suggest removal )
SCgal (anonymous) says...
Why take a risk on such a huge lifetime investment~ pay a few hundred more, get the job done right the first go round, and no worries about any legal issues down the line~
Wouldn't it be horrid to save a few bucks in the beginning only to end up with some loophole and have a huge legal disaster along the way or in the end~
May 23, 2008 at 7:56 a.m. ( permalink | suggest removal )
abriggs3 (anonymous) says...
Most settlements are prepared by the paralegal or secretary. Very little lawyer time is involved so to charge $450.00 is ludicrous. The lawyer doesn't even know what is in the papers. Just shuffles the papers accross the table and says "sign here"
This is pure protectionism and the Supreme Court ought to be ashamed..
May 23, 2008 at 9 a.m. ( permalink | suggest removal )
JC (anonymous) says...
"They say that what they're interested in is consumer choice, but that's the same crowd that brought about the subprime crisis because people signed for a loan that they don't understand," Toal said of the FTC.
BULL! At my very first closing, the lawyer was talking so fast and pushing papers so fast, there was no way I was understanding anything, and didn't know better not to stop and say, hey...you've done this a thousand times and your lobby is full of others waiting...slow down!
The second closing was all done by the lawyer's assistant, who got it wrong even after my real estate agent spoke to her to make sure they got it right. At the lawyer at that closing went through everything slowly, explaining the details.
May 23, 2008 at 9:19 a.m. ( permalink | suggest removal )
Tammie (anonymous) says...
She looks a scalding hot mess.
May 23, 2008 at 9:54 a.m. ( permalink | suggest removal )
chance78 (anonymous) says...
Just a quick literary aside here - Shakespeare's quote "The first thing we do, let's kill all the lawyers" was spoken in the play Henry VI, pt. 2, by a person plotting to place a tyrant on the throne. In short, the character was stating comically that the quickest route to tyranny and centralized power would be to kill all the lawyers. I don't think quoting it as an actual suggestion by Shakespeare is historically accurate, but I know accuracy is a very devalued currency on this forum.
May 23, 2008 at 10:20 a.m. ( permalink | suggest removal )
palmettobug (anonymous) says...
Having been a real estate agent in South Carolina and seeing many closings, I know that most of the time the secretary does most of the work and the attorney walks in with the jokes for the actual signing. I know that the attorney is ultimately responsible however a title closing company can have the knowledge and expertise to close transactions just as well. The attorneys are the ones in South Carolina that write all of the original contracts from the listing agreement on up. They are protecting their own interests first.
May 23, 2008 at 10:53 a.m. ( permalink | suggest removal )
AHLeland (anonymous) says...
Lawyers have errors and ommissions insurance. This means that if something goes wrong because of a mistake they made, you're covered. It does not mention in the article if the other states require whoever has the closing to have this coverage. That would be my main concern.
May 23, 2008 at 11:20 a.m. ( permalink | suggest removal )
localboy (anonymous) says...
The issue is not lawyers used at closings but the state REQUIREMENT that one use a lawyer. If you are comfortable without using a lawyer for a closing then just like representing yourself in a criminal proceeding, it should be allowed! As long as the legislature appoints Judges they will be beholden to the legislature and while lawyers are less than 50% of the legislature the cronyism within the body makes up for the rest.
In the recent RID (Developers) Bill H.4745 from the house 32 of the 40 sponsors were as follows:
6- attorneys, 1- Real estate attorney, 4- Real estate brokers, 4- Real estate developers, 1- Real estate lobbyist, 1- Mortgage banker, 4- "Businessmen", 2- "Full time legislators", 2- Consultants, 15- Various. Summervilles own Annette Young, VP of a Summerville development company owned by Arnold Goodstein (husband of Judge Diane Goodstein) was a primary sponsor. - Go figure!
The State Supreme Court is a rubber stamp and maintains this position. Why did the Republican majority Senators confirm a liberal State Justice over an at least equally if nor more qualified conservative candidate if this is not the case?
May 23, 2008 at 11:24 a.m. ( permalink | suggest removal )
LivingandLearning (anonymous) says...
While attorneys may have helped draft the standard forms in use by most SC residential real estate agents, I have never seen an attorney involved at the contract phase of a residential real estate transaction in SC. The scary fact is that every day in SC real estate agents are modifying and drafting legal documents. I would never enter into any transaction without consulting an attorney, and I cannot figure out what the State of SC knows that other states in the country have not figured out (leave the legal work to those trained to do so); several states have attorney review periods whereby the parties to a transaction have the option to have the contract reviewed by an attorney during a brief 2-3 day period after the contract is executed/ratified.
Certainly you don't need an attorney to close a transaction. However most banks require that buyers pay to have an attorney "close" the mortgage loan that many buyers rely on to buy a home. Ironically most buyers think the attorney they are paying for is "representing" them, when in fact the attorney is representing the bank. I believe all title companies also require that a SC attorney review the title search and hence the same closing attorney is typically also the agent for the title company (for which the attorney may receive fees much greater than the legal fees they charge for closing the transaction somehow this dual role is not a conflict of interest or apparently subject to RESPA disclosure).
If what we care about is protecting consumers, lets get the real estate agents to stop playing lawyer, let the banks pay for their own attorney to close the mortgage loan, and stop the lawyers from acting as title insurance agents in matters they are supposed to be representing the buyer. I know, I know, this will increase the closing costs for the consumer and yes this may make some people wait longer before they can afford to buy a home. Since when do we apply cost benefit analysis to ethics? Not to mention that it didn't seem to hurt the housing markets in other parts of the country where this way of business is the norm.
May 23, 2008 at 12:06 p.m. ( permalink | suggest removal )
equaltime (anonymous) says...
Thomass1776 said "The Family Court System is seriously broken. Anyone with half a brain knows that."
Who helped him with that assessment... he is about one quarter short to be qualified!
May 23, 2008 at 9:58 p.m. ( permalink | suggest removal )
lillycollette (anonymous) says...
Posted by Reader:
LillyCollette wrote, "Now if the FTC and the U.S. Dept. of Justice would just start looking at the damnable peccadilloes of lawyers practicing family law -- where property titles are reduced to used toilet paper!"
The family court system in South Carolina works perfectly well. Lilly had a bad experience herself and has apparently never gotten over it.
-----------------------------------------------------------
Reader it is my intention to bring certain criminal violations of law to justice.
Then we will see how well the perpetrators 'get over it'.
May 24, 2008 at 6:04 a.m. ( permalink | suggest removal )
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