Responses to: “Title companies preparing real estate documents”

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Responses to: [relu] Re: Title companies preparing real estate documents
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Response No. 19
Beth Richley
brichley@osbar.org

To: RELU, UPL, Other interested parties
From: Beth Richley, Public Affairs Assistant, Oregon State Bar
Date: 03/03/03
Re:3/07/03 UPL/RELU Conference Call @ 3:00

There will be a conference call on 3/7/03 at 3:00 pm regarding SB 43: UPL definition to clarify limits on title company activities for those of you that are interested in participating. The conference call number is 1-800-247-9979 and the topic is Unlawful Practice of Law. This email is being sent to the Real Estate & Land Use Section, the Unlawful Practice of Law Committee and various other interested parties. If you know of someone that might be interested, feel free to forward the information. If you have any questions, please don't hesitate to ask.

Thank you,
Beth

Beth Richley
Public Affairs Assistant
Oregon State Bar
Direct Line: (503) 431-6376
Fax: (503) 598-6976
Email: brichley@osbar.org
http://www.osbar.org

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Response No. 18

To: The Real Estate and Land Use Section Listserve
From: William Carter, Oregon State Bar Public Affairs Committee Chair
Date 2/20/03
Re: Background information on SB 43 regarding UPL definition to clarify limits on title company activities

Some background information on the development of this bill might be helpful:

1) Over the years, the Bar has litigated cases where title and/or escrow companies have gone beyond what the law permits them to do.

2) The Bar had such a case in the last few years in Harney County where the Bar sought and obtained an injunction against a title company to stop them from drafting legal documents that constituted the practice of law.

3) The Bar was approached by representatives of the Oregon Land Title Association (OLTA) to seek clarification on what actions were permissible under existing law and which might subject them to Bar litigation.

4) In response to OLTA's inquiry, the Board of Governors authorized a workgroup to address unlawful practice of law issues that have arisen in the real estate and title industry.

5) The established workgroup consisted of representatives from the Unlawful Practice of Law Committee, The Real Estate Land Use Section, the Debtor-Creditor Section, and OLTA. The workgroup met on several occasions and discussed practices and procedures of real estate agents, escrow companies, and title insurance companies in the closing of real estate transactions in Oregon.

6) The result from the informal workgroup was the development of a bill to clarify the lines of permissible conduct by codifying existing case law under Oregon State Bar v. Security Escrows Inc., 233 Or 80 (1962). All work group members reached a consensus on the draft.

(7) Subsection (5) of Section 1 of the bill comes directly from Coast Security Mortgage Corporation v. Real Estate Agency, 331 Or 348, 357 (2000), citing Security Escrows. Subsection (4) of Section 1 of the bill is intended to clarify the activity permitted by Security Escrows, characterized generally by the court as the activity of a scrivener.

8) The final product from workgroup was presented to the UPL Committee by the members that participated in the workgroup and approved by the entire UPL Committee in December 2002. The proposal was also approved by the BOG Public Affairs Committee. That draft bill became the basis for SB 43, which is currently pending before the legislature.

9) To obtain the text of the bill, you can access the web site at http://www.leg.state.or.us/billsset.htm.

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Response No. 17
Bob Butler
bob@butlerlooney.com

Tom,
Max Taggart from Ontario represented the Bar in the Harney County case. He tells me that this proposed legislation goes way beyond the Security Escrows case. I haven't had time to get into that detail, but I trust what Max says.
There is an inherent conflict in the title company preparing a warranty deed for a seller, issuing the title insurance that protects the buyer, then when the error is discovered, the buyer is protected by the title insurance company who then sues the seller under a subrogation theory because he signed a warranty deed!
As we all know, title companies don't just present a list of forms and let the parties select the correct form and give the instructions on how they want it completed. They practice law and give legal advice, often times poor legal advice. Then they have the guts to present a self-serving disclaimer that they require the seller to sign to take them off the hook.
I like the suggestion that before any documents are prepared, they must give a written statement to the parties explaining the conflicts involved, the fact that there are significant legal consequences to the actions to be taken, including the possiblity the party may be sued by the title insurance company due to the errors the title agent may make, and recommending they seek legal advice if they have concerns or questions. I also like the suggestion that the escrow people be trained and certified if they are going to act as scrivners for the parties.
I fail to see how the proposed legislation will protect the public. All it does is give title companies more authority to give bad legal advice and leave the public to their cause of action after the damage is done. All of us have our own horror stories of problems that have been created by title companies preparing legal documents. Surely we can find some middle ground that will protect the public and still keep the title companies responsible for the messes they create. I agree that in most of the cases, there are no problems. But when there are, the title companies should not be allowed to hide behind their disclaimer that they had the seller sign at closing without even knowing what he was signing.
Title companies are using this as a marketing tool. "We'll prepare your documents for free so you don't need to hire a lawyer" is the concept they use. And that doesn't serve the public.
Bob Butler
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Response No. 16
Chris Minor
cminor@newportlaw.com

This makes sense. Having done a bit of real estate work, and having served on the Unauthorized Practice Committee as well as the Executive Committee of the RELU Section, I am well aware that the title companies DO NOT stay within the limits of the Security Escrows case.

However, there is no real chance that the UPL Committee is going have the resources to solve the problem through civil enforcement, and the local DA's traditionally have no interest whatsoever in this "crime." Moreover, there is a big issue about the political fallout. I know that in years past there have been serious concerns that the legislature would authorize paralegals and others to engage independently in activities now constituting the practice of law.

Whether this is a codification of case law, or a compromise, it clears the air, gives us all a fresh start, and will get out to the title companies and realtors as the "new rules," perhaps reigning them in a bit. I see title companies doing horrible things, and practicing law egregiously from time to time. On the other hand, I must concede that some title officers have an understanding of title issues as good or better than many lawyers who don't regularly practice in that area. I cringe, however, when they prepare notes and trust deeds, and other documents as well, and I doubt that any customer has ever "selected a form" and instructed the title company how to "fill in the blanks." I have also seen a few deeds prepared with the exceptions abbreviated to: "matters of record."

Chris Minor
Newport
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Response No. 15
Anderson, Robert
randerson@bpa.gov

I agree with Bill.

Response No. 14
Conley Harrison
Harrison.Conley@state.or.us

Senate Bill 43 has been assigned to the Business and Labor Committee with a subsequent referral to the Judiciary Committee. A public hearing and work session were held Wednesday, February 5th.

For general info, consider contacting the Committee Administrator, Dennis Dotson, @ 503-986-1640.

For comments of a more political nature, the Business and Labor Committee members are:

Senator Dave Nelson, Chair
Senator Vicki Walker, Vice-Chair
Senator Roger Beyer
Senator Rick Metsger

Contact information for the members is available on the website for the Legislative Assembly http://www.leg.state.or.us/index.html.
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Response No. 13
Ed Hill
eeh@efn.org

I agree with a number of concerns mentioned. I question how many of the OSB participants who actually get involved with litigation with these issues were involved with the draft of the bill. It seems to me that the bill may go farther than Securities Escrow which attempted to interpet and apply existing law in the context of the illegal practice of law. I am more concerned about the consumer who relies completely upon the realtor and title company only to discover a problem later that may be adressed in the docs of which they in fact were unaware.

Ed Hill
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Response No. 12
Steve Mountainspring
dccmtspg@rosenet.net

The problem as I see it is that there is a gradation of discretion in what the bill proposes to allow title companies to do, much of which they already do. On the one hand, it appears purely ministerial for a title company to prepare a warranty deed from seller to buyer of residential real estate, listing the exceptions from the title report. Title companies are frequently just following the instructions in the earnest money agreements, which are legal contracts typically prepared by nonlawyer realtors (and so bring there own problems).

At the other end of the spectrum, however, are more subtle effects. I see the greatest room for mischief in allowing title companies to prepare subordination agreements and present them for signature, which the bill would allow. Subordinations are not that common in run-of-the-mill closings, and although the subordination itself may be ministerial, the decision by the senior lienholder whether to subordinate is critical. Unlike run-of-the-mill closings, many subordination transactions pull in senior lienholders who have no direct role in the closing (i.e., their lien arose from a prior transaction). Unlike buyer, seller, and lender in the current closing, the senior lienholder does not have the involvement, the focus on the details like the current parties do … and so is more vulnerable to the suggestion to sign the subordination if it were presented by the title company as a document that just needs to be signed.

I had a case where dad sold the farm, took back a first trust deed; later the buyer asked dad to subordinate to a new money lender, by which time dad didn’t track what was going on (it all looked legal to him); dad dies, buyer defaults, and dad’s kids find out what “subordinated” means – because it is highly doubtful dad ever understood. In other words, dad was real careful when he sold the place, but after buyer started making regular payments and things got into a comfortable pattern, dad relaxed his guard and signed what looked like innocent papers.

So my suggestion is that the bill delete subordination agreements.
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Response No. 11
Richard Fairclo
rfair@cdsnet.net

I agree that "our" comments should get to the decision maker, perhaps by this Section.

Additional comments:

My experience is that the title companies in my county don't often mess up on the documents listed in the proposed statute, or on deeds.

I have seen major problems caused by their preparation of well easements, creating life estates and items less basic.

Listing acceptable forms plus required training and defined responsibility may help clarify their role and keep client costs down.

If so, the title company form directing them to prepare the documents should not be allowed to absolve them from responsibility in such preparation.
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Response No. 10
Thomas C Howser
tom@ashlandlaw.com

Bob: I understand you concern, but that is a negligence issue, not an unauthorized practice issue. Real estate brokers have been exempt when acting within the scope of their license for years. Title companies are solvent and responsible for their mistakes. Frankly, I see less mistakes in most of the escrow closing by title companies that I do in ones done by lawyers. Still a negligence issue and will always be.
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Response No. 9
Thomas C Howser
tom@ashlandlaw.com

Doug: Before everyone flies around concerning the title company bill, it should be realized that this was a joint effort of the Unlawful Practice Committee, the title companies and several other bar groups who thought it would be a good idea to put the Security Escrows decision in statutory form. We worked on this a lot, and it would be a breach of good faith if the bar suddenly started opposing it when we were responsible for getting it going. Steve Finlayson is in Burns where there is a title company that was being prosecuted. Fortunately, most of them are not that way. This is NOT a change in the law, it is a codification. Before we all get too excited, let's read Security Escrows and see what the Supremes have already said about the situation.
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Response No. 8
Doug Schmor
dschmor@brophymills.com

I have read the comments of each of you. If we are going to make any impact on this legislation these comments need to be forwarded to legislators and the board of governors. We need to find out what committee this bill has been assigned to and the adresses and emails of the committee members. Then we need to flood the committee with letters and testimony in opposition. Perhaps we could also get the real estate section of the bar to wade in on this. Does anyone have the basic data on this bill? Doug Schmor
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Response No. 7
Bill Nichols
wfn@whitepeterson.COM

Greetings from the great state of Idaho

Let me jump in with a few comments on the proposed legislation.

As my friends Bob Butler and Steve Finlayson know, for most of my 20+ years of practice, I primarily practiced in Oregon, but have also practiced in Idaho since 1986. In 1999 I moved my practice to Nampa, Idaho. I have more than a fair amount of experience with real property transactions in both states. The problem with this proposed legislation is not with the language, it is with how the title companies will carry it out.

My wife and I have been to four different closings in Idaho since 1993. In each case, the title company prepared the documents and we were presented at closing with a standard form wherein the title company asked us to acknowledge that we had asked them to prepare the documents (we had never been asked whether we wanted them to do that), and that they were mere scriveners for the documents the parties selected. At one closing on a new home we had built, I looked over the deed form and noted that although it stated at the top that it was a warranty deed, there were no warranties in the deed itself. This was a form that this particular title company had used probably thousands of times and no one had caught the error. I sent a copy of the deed to the inhouse lawyer for this particular title company, with whom I was acquainted, and they fixed their form. To my knowledge they did not try to go back and get corrected deeds for all those that failed to contain warranties.

My recommendation. If we are going to authorize this by statute, put in a requirement that the title company must provide the documents to the parties not less than three business days before closing unless the parties get a lawyer to sign off on the documents sooner than that. If they want to cloak themselves with the mere scrivener mantle, make them get the documents out so someone has a real opportunity to look them over and make sure that the documents are correct. In the alternative, make them strictly liable for any errors in the documents.

On the upside, this will make more work for real property litigators. Good luck.

Bill Nichols
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Response No. 6
Stephen D Finlayson, P.C.
finlaysonlaw@centurytel.net

I certainly agree with the comment that: "The problem I have seen is that the title companies never merely act 'as scrivener to fill in blanks in any document selected by the principals,' especially where the title company '[p]resents to the principals to the transaction for their selection a blank form.'" I have tried for years without much success to get real estate professionals to understand, I mean really understand, some of the not so subtle differences between a trust deed and a land sale contract that can really impact a seller in the event of recurring defaults by a purchaser. How can anyone knowledgeable think that lay persons without some specialized training or experience could actually be expected to select from all of the various alternatives available in even a simple residential sale? Surgeons use the term "informed consent."

I also agree with Bob Butler's comment for the following reason. We have a title company here that, I think, may be the last title company that the bar prosecuted for unlawful practice. That case ended with a stipulated judgment including an injunction. Unfortunately, the point was apparently not made convincingly enough (perhaps because they were not forced to pay attorney fees, etc.) and although they have become a little more careful about it, they are still doing essentially the same thing that they were doing before they were prosecuted. I have had clients tell me after the fact that when they went to closing all the documents were completed and they were asked to sign an additional document that indicated the client had chosen the forms that were used. I don't see why they will change a thing if this new proposal (which at first glance doesn't appear to actually change much anyway) becomes law.

I have only glanced at the proposed legislation but do not understand Tom's comment indicating it deals primarily with closings as opposed to preparation of real estate documents. I am not concerned about title companies doing closings; I am concerned about title companies preparing documents and especially in the setting of small towns in Oregon where title companies do not have a lawyer on staff who prepares the documents and talks to parties before closing, or there is a process for parties to have help with something they know nothing about and are incapable of informed selection or approval. Isn't that what lawyers are trained, schooled, and licensed for?
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Response No. 5
Bob Butler
bob@butlerlooney.com

This is all well and good, but tell me how the public is being served or protected with this legislation. At a minimum, the title company employees should be trained and certified to "select the form" and they should have the same liability, and be required to provide the same insurance and protection as lawyers. Also, why doesn't the proposed legislation include deeds? and when will it include real estate contracts? The camel's nose is already in the tent. It seems to me that we should be trying to get it out, rather than allow it to come in even more. Why would the Bar, who gladly takes my dues, be involved in sponsoring legislation such as this rather than doing something to protect the Bar and the public. This does neither. I am open to any suggestions for a peaceful resolution of the problem. Short of that, we members of the Bar should be making arrangements to appear and testify and show the legislative committees involved the problems that are being and will be created with allowing title companies to practice law.
Bob Butler
Vale, Oregon
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Response No. 4
Ryan Collier
rcollier@clarklindauer.com

Friends:

I have to agree.

The legislation in its present form should be opposed, not supported by the Oregon State Bar. If title companies are to be allowed to practice law in these areas, the public must be protected. Title companies must be required to operate under similar ethical guidelines, to provide disclosures regarding representation, and to ultimately be liable for malpractice. How will customers be advised on the type and quality of deed, the adequacy of title insurance coverage, and the obligations under particular agreements?

Who at the bar sponsored this legislation?

--
Ryan W. Collier
Clark Lindauer Fetherston
Edmonds & Lippold, LLP
880 Liberty Road NE
Salem, Oregon 97301-2480
T (503) 581-1542
F (503) 585-3915
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Response No. 3
Thomas C Howser
tom@ashlandlaw.com

Dear Mr. Ambrose: I am a member of the Unlawful Practice of Law Committee and was a member of the subcommittee which dealt with this issue. I am not authorized to speak on behalf of the Bar or the committee. I write this as a private bar member, because I do not believe your "doom and gloom" comments are warranted. The impetus for this legislation was a combination of the Bar's enforcement of UPL restrictions on a particular title company. That company was clearly outside the bounds. Both the title and escrow industry and the bar felt there was some misunderstanding about the limits of Security Escrows. However, most title companies understand Security Escrows and stay within bounds. This legislation was intended to track the Security Escrows decision by the Supreme Court, and I believe it does so. You will note that real estate agents have had a similar statutory exception for years. I personally believe that most title companies are better equipped and trained to follow common form use than most real estate agents. In addition, there is little risk to the public as they have financial resources to be answerable for errors or omissions. By putting the Security Escrows decision into the statute, I felt that it eliminated much of the uncertainty about whether Security Escrows rules are still viable. Title companies do a generally good and professional job of handling real estate transactions. Lawyers have generally abandoned this field for several reasons. One, lawyers are too expensive to hire to close most deals and two, most are not as well qualified or equipped as the title companies. I too lament the passing of real estate closings by attorneys. I used to do a lot of them. However, with the many regulations that now need to be complied with, I think the PLF personnel will sleep better with me out of the field. Most of the forms and procedures are dictated by attorneys hired by the title companies and I personally feel that the risk of UPL here is minimal. In any event, I agree that it recognizes essentially what is going on. However, this seems to me to be what the Supremes said was OK and removes some uncertainty. Give me a call if you would like and we can talk.
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Response No. 2
From: Matthew Derby
mwdlaw@mcsi.net

David and Bob:

The problem I have seen is that the title companies never merely act "as scrivener to fill in blanks in any document selected by the principals," especially where the title company "[p]resents to the principals to the transaction for their selection a blank form." The meaning of the form changes a great deal depending on how the blanks are filled in or depending on what parts of the form are crossed out [for example, arbitration clauses are horrible for most people and should be eliminated]. The title companies I have seen fill in the blanks without actually consulting the principals and proceed to make a mess of things. Just the wording under the grantee portion of a deed alone can create or solve a myriad of problems. The principals seldom know how they want to hold the property, or even what their options are. Who is going to explain it to them? The title company?

If the title companies are going to be allowed to do more, then they need to have increased liability to go with it and they need to be required to carry insurance to cover their malpractice.

Matthew W. Derby
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Response No. 1
David Ambrose
drambrose@ambroselaw.com

Bob,

Thanks for bringing this to our attention. I agree we should be paying attention to it. What I am wondering is why our own bar would be promoting this type of legislation. Of course, the title companies are already engaging in this type of conduct with impunity, so I suspect they're simply trying to reduce their exposure by legislative fiat. Perhaps our bar has simply given up, and is attempting to add some additional protections which now do not exist. This is just another example of the erosion of the concept of the "practice of law".

The reality is that notwithstanding all of the protections supposedly afforded by the conditions set out in the proposed legislation, they can not and do not provide the same type of protection as would be afforded by an attorney reviewing the transaction on behalf of the party. A set of pre-fabricated forms does not take into account the nuances of a particular real estate transaction. Further, what I would like to have explained to me is why is it that a title company is permitted to represent both sides to a transaction, and we can not do likewise. Also, what this legislation fails to address is the issue of liability. A title company will literally have no liability if the documents they provide to the parties does not effectively do what the parties had wanted done, whereas, with an attorney, one can always bring the malpractice claim for negligent drafting. Of course, you get what you pay for.

Further, while there is a great deal which can be said on this subject, if this type of practice is promoted, are there going to be any additional requirements imposed on the title companies (well, I already know the answer), such as that if they provide this type of service, they can't charge for it, or if they provide this type of service, they'll also agree to make sure that the parties understand the differences in the types of title insurance they are being provided with (for example, in one of the cases I am aware of, where a party (now a client of the firm) made a loan using documents prepared by the title company, the title insurance which was issued was not an extended policy.) Further, what one would expect as standard additional endorsements were not provided or even discussed with the client. That client would never have known of the difference if his only exposure had been to a title company.

Having said all of the foregoing, I have a great deal of respect for title companies (well, most of them), and for the title officers with whom I have had dealings (well, again, most of them). But let's call a spade a spade.

Regards,

David Ambrose

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