The real estate industry, being rooted in practices developed over generations, is slow to change. In today’s business climate, inflexibility can prove disastrous. But, last month, the South Carolina Supreme Court moved its real estate industry toward modernity by endorsing a national lender’s internet-refinancing process, which the court found satisfies the state’s existing requirements for attorney involvement.
Different states treat real estate transactions differently. Some states (like Ohio and Utah) allow non-lawyers to manage and close real estate transactions with no attorney involvement. Other states, like South Carolina, deem the transfer of real estate to be the practice of law, and they require lawyers to participate in every transaction. The typical justification for mandating legal oversight is to protect the public from the possible missteps of untrained real estate personnel. Attorney participation, the argument goes, ensures that injured consumers can have some recourse, normally against the lawyer’s malpractice insurance.
In any event, in the past 15 years, many lenders and real estate business have expanded their operations across the country, including into states that prohibit closings by non-lawyers. Figuring out how to properly handle an internet-based real estate transaction in those states has proven challenging.
In the case before the South Carolina Supreme Court, Quicken Loans, Inc., and Title Source, Inc., pulled off that feat—but just barely. A referee had earlier held that those companies’ refinancing process constituted the unauthorized practice of law. Quicken Loans and Title Source managed to convince the high court to reject the referee’s decision. The factors the companies identified in support of their position serve as useful guides for other businesses that operate nationally and in jurisdictions that allow closings only by lawyers:
- Quicken Loans and Title Source got legal advice beforehand about whether their proposed refinancing process would comply with state law.
- The process the companies devised called for meaningful attorney involvement at every necessary stage, from reviewing abstracting results to verifying proper escrow disbursements.
- Attorneys who conducted the closings were able to testify about specific instances in which they made changes to documents or otherwise exercised independent legal judgment, which refuted the notion that the lawyers were mere rubber stamps for Quicken Loans.