When a Real Estate Closing Attorney is Not an Attorney in New York?

Since lawyers have been lawyers, there has always been pressure to release the age old bonds of the attorney client privilege in favor of letting non-professionals practice law. Never more so has this pressure been as intense as in the real estate industry where many states permit non-lawyer participants do all sorts of acts that attorneys did or should do. For example, real estate brokers in some states are permitted to draft and review and prepare the contract of sale in a real estate transaction. Not only does having an attorney present raise the level of the transaction, but it also insulates parties from the self-dealing that can often occur if an attorney is not looking into the matter.

To its credit, New York State has generally avoided the trend to permit non-lawyer quasi professionals invade the traditional attorney client relationship. The reason for this is that we believe in New York that the professional, confidential fiduciary relationship between client and attorney is tantamount to making the system work.

Recently, a New York State appellate court censured an attorney who formed a company using non-lawyers to provide closing services in the sale of foreclosed properties. The attorney contended that the services his law firm (company) provided were “clerical” in nature, and did not amount to the practice of law. Despite his “previously unblemished record,” however, the Court disagreed, finding that he violated ethical cannons by aiding non-attorneys in the unauthorized practice of law. Specifically, the Court held that the services performed by his closing company “were of the character usually performed by lawyers, and were formed pursuant to a contract that required an admitted attorney as a necessary presence.”

After winning the contract to conduct the closing, the attorney used a non-attorney paid by the attorney to serve as general manager (she also owned a majority share in the company), and then performed all of the closing scheduling, prepared closing figures and attended closings. The attorney shared profits and losses with the non-attorney, who also happened to be a joint signatory on a non-interest-bearing trust account, used to disburse sale proceeds. [This attorney must not have taken Ethics 101 in law school].

At the same time, the attorney had only minimal involvement reviewing deeds and title searches which were also conducted by closing company. He did not exercise supervisory authority over [the non-attorney], who administered all of the closing services.

Although the complaint initiated from an attorney competitor, the respective ethics panels confirmed that the practices of the closing company violated basic tenets of ethics laws found in the Disciplinary Rules of the Code of Professional Conduct. Such violations included aiding a non-lawyer in the unauthorized practice of law and sharing legal fees with a non-attorney.

Judiciary Law ยงยง484 and 495 bar non-attorneys and voluntary associations or corporations from requesting or receiving compensation for “preparing deeds, mortgage, assignments, discharges, leases or any other instruments affecting real estate,” the panel wrote.

“We thus find that respondent has committed professional misconduct by forming a corporation with a non-lawyer for the provision of those services, failing to exercise oversight of its activities or employees and failing to safeguard sale proceeds in an adequate manner.”

The Bottom Line– while not always understood by non-attorneys, the rules governing the unauthorized practice of law by non-attorneys is designed to protect the consumer and clients using the services. While attorneys may be more expensive, they are charged with fiduciary obligations that are closely regulated and controlled by other attorneys and the State of New York. Because of this confidential relationship, clients can expect to have their confidences protected by a professional New York real estate attorney, who is also duty bound to know what she is doing.

Hire an attorney, don’t be “penny wise, pound foolish.”