(Kerrie) So what are we opining upon this month?

(Jim) I thought that we might dispel some myths, urban legends - if you will.

(Kerrie) Sounds interesting. Shall I queue up the eerie music for this one?

(Jim) I don’t think so. Actually, it came to me last week in a case management conference with the judge in a case that our firm is handling. The case involves specific performance of a real estate contract. The attorney on the other side is also a real estate attorney that works with a title company. At one point the judge made the comment that with this case pending no attorney would ever pass title if the owner tried to sell the property. Both attorneys looked at the judge incredulously. I finally said, “What makes you think that an attorney is ever going to review this title?” The judge was surprised and replied that an attorney would have to review the title for someone to get a loan. I believe that he was truly shocked when I told him that I doubted that an attorney would ever review it.

(Kerrie) I hear the same thing from Realtors when I teach classes for continuing education. People actually believe that attorneys are an integral part of the title and closing process.

(Jim) Well, they were, years ago. Why when I started to practice eons ago, attorneys checked the titles, attorneys prepared the documents, attorneys closed the transactions and attorneys recorded the documents.

(Kerrie) Yeah, and you probably walked ten miles up hill to the courthouse and then walked back ten miles up hill to your office. And all of your title notes were written with quills. Okay, so what happened? Why are attorneys no longer involved?

(Jim) Nobody wants to pay the costs to have attorney involvement. Most believe that it is cheaper to have lay people handle it. Title and closing charges are actually lower now than they were ten years ago. Competition has driven down the prices. Two major pressures have driven the closing fees so low – competition for business among an ever growing number of title companies and pressure from lender and brokers to keep the other closing fees low.

(Kerrie) It would seem like that is a good thing, but are the people handling these transactions qualified to do so? There are some states where there must be an attorney at every closing. The Kentucky Bar Association recently asked the Kentucky Supreme Court to make a ruling on that issue. The Bar believed that closing real estate transactions is the practice of law. The title industry countered maintaining that the documentation is mostly standard forms that come from the lenders and that having parties sign documents does not require a law degree. The Supreme Court somewhat agreed, but also expressed concern about the explanation of the documents by a lay closer. Even though they are standard forms, many are complicated and involve serious legal obligations and consequences.

(Jim) So what did the Kentucky Supreme Court do?

(Kerrie) They took a middle ground. Laypersons can handle closings, but cannot give any explanation of the documents. The court also ruled that there should be an attorney available if there is some legal question.

(Jim) Well, I suppose that is helpful. The reality is that attorneys are only brought in where there is a problem. And therein lies the problem. If the laypersons checking title, preparing documents, doing the recordings, etc. are not trained well enough to recognize a problem, then there will be no attorney oversight.

(Kerrie) The system seems to work, doesn’t it? But then again, if nobody can recognize title problems, who is going to catch them? I suppose that’s why we have title insurance. The real costs come after the closing in the form of attorney fees to fix the defects.

(Jim) Well, that’s why the lender’s require title insurance for the loan. Buyers still seem to think that attorneys have done all the work and owner’s title insurance is not necessary. I wonder where they would get that idea? Surely not from other real estate professionals?

(Kerrie) I don’t know. We just got a call today from a buyer that was offered an owner’s policy and rejected it. It turns out that the seller had forged a mortgage release and the mortgage holder is now threatening to bring a lawsuit. The lender will be protected, but the young couple that bought the house now must pay the lien or spend a lot of money in attorney’s fees defending their home. No title examiner, layperson or attorney could have caught that fraud.

(Kerrie) I suppose that is the other myth to be dispelled – that people are honest.

(Jim) For the most part they are, but there are always a few rotten apples. But that’s just my opinion.

(Kerrie) And mine.

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Jim and Kerrie Matre are married partners in the law firm of Matre & Matre Co., LPA. The firm generally limits its representation and practice to all legal issues related to real estate, construction law and corporate representation.

This article is written to introduce the reader to common real estate legal concepts. It is not intended to be legal advice to any specific party. As always, consult your attorney regarding your specific situation.

Have questions? Email them at either kmatre@matrelaw.com or jmatre@matrelaw.com