Real Estate Transactions I
Professor Stomski, Fall 2014
I. Real Estate Transactions & the Role of the Lawyer
Unauthorized Practice of Law
Parts of a Real Estate Transaction
State v. Buyers Service [Buyers is a commercial title company that receives clients through referrals from realtors; Buyers does real estate closings without the assistance of a lawyer]
· The practice of law is not confined to litigation, but extends to activities in other fields, which entail specialized knowledge and ability.
· POLICY: protecting buyers and their interests by having qualified specialists (lawyers) instructing as to the manner legal documents should be executed
· Four key parts of a real estate transaction requiring the assistance or supervision of a lawyer:
i. Preparation of instruments (documents)
ii. Title abstract (search) & title examination
iii. Real Estate Closing
iv. Recording legal instruments (sequence of recording is critical)
Doe Law Firm v. Richardson [A lender retains Doe Firm to serve as closing attorney in refinance transactions; after closing, Doe returns documents to Lender with instructions to make disbursements; Lender makes disbursements; Doe does not have authority over Lender’s accounts, nor does it review or reconcile these accounts
· In addition to the four key parts of a real estate transaction, as seem in Buyers Service, there is a fifth part: Disbursements of money
· The disbursement of funds cannot be separated from the process as a whole; lawyers must oversee this final step of the closing process
Doe v. Condon [Attorney petitioned for declaratory judgment on whether his business association with lender and title company was assistance in the unauthorized practice of law]
· Refinances still require the supervision of a lawyer with specialized knowledge
In refinancing a real estate mortgage, the four steps in the initial purchase situation still exist.
Crawford v. Central Mortgage *the “rock and a hard place” case! [
· No attorney is needed for a loan modification when there is a default on the mortgage
· The rock and a hard place = Do we require a lawyer when the client is already struggling with money to begin with?
NOTE: A Home Equity Line is the same as a mortgage and requires lawyer supervision.
Physical Presence of Lawyer at Closing
In re Lester [Prior to closing, lawyer reviewed closing documents; lawyer then went out of town but remained accessible to his paralegal by phone throughout the closing]
· Although the client does not have to be present at a real estate closing, the lawyer must be physically present at the “place of settlement”
Place of settlement = where the closing occurs
Wachovia v. Coffey [
· If you don’t have a licensed South Carolina attorney supervising your transaction, you can lose both your legal and equitable remedies
· This means you cannot sue under the note (legal) nor the mortgage (equitable)
Matrix Financial v. Frazer [
· Closing a loan without attorney supervision constitutes the unauthorized practice of law and will preclude a lender from obtaining equitable relief.
· When the mortgage loan is closed without the supervision of an attorney, lenders are not barred from enforcing the mortgage or seeking other equitable relief if the mortgage was recorded prior to August 8, 2011.
Reduce to Writing
Mali v. Odom [Mali wanted to buy four lots and use it to build a school; two lots were unrestricted but the other two were restricted to ‘residential’ use; Odom was hired to examine title and handle closing; Odom told clients about the restrictive covenants but did not reduce this to writing]
· Restrictive covenants are contracts that run with the property and eventually terminate at a certain point defined in the contract
(Covenants cannot be revived unless the contract specifies such)
· When you give advice, reduce it writing! Then, there is no chance that, years later, the client will forget what you told him or her.
Title Abstract v. Title Examination
· Title Abstract – collecting records regarding a piece of property
· Title Examination – lawyer examines records to make sure it check out and there is clear title for transfer
· Title Abstractors should have professional liability insurance, should be able to self-manage, and should know the county in which they work
· 40 years is minimum search standard for Residential title searches in South Carolina
(Basically the statute of limitations for bad title – but statute does not run for incompetents, minors, or remaindermen)
· 60 years is minimum search standard for Commercial title searches in South Carolina
· Tax Deeds are BAD TITLE! Fix it through a Quiet Title Action
Doctrine of Merger
Occurs when one entity obtains both a greater and a lesser interest in land to the same piece of real property, the lesser interest merges into the greater interest and is thereby extinguished. (DOES NOT apply to mortgages; only Titles merge)
Doe v. McMaster [Borrower contacts Lender to refinance; Lender notifies Title Company; Title Company order a title search from an independent contractor; Lender prepares loan documents; Attorney review documents, meets with Borrower, and supervises execution]
· Individuals may generally draft and record their own deed without the assistance of a lawyer, but entities (corporations) may not
· Independent attorneys (not employees of the title company) are necessary in real estate transactions
Lender may prepare legal documents for use in refinancing a loan as long an independent attorney review/corrects the documents
In re Matter of Weems [Lawyer is a solo practitioner; lawyer was contracted by North American Title Co. to write title insurance for his closings; lawyer gave NATC employees authority to sign trust account checks with his signature stamp; lawyer didn’t do monthly reconciliations; lawyer closed his practice and left remaining funds in the authority of NATC, who continued to have his signature stamp]
· A lawyer may not put client money in non-lawyer hands!
II. Lawyer Ethics in Real Estate Transactions
A. Loyalty
Loyalty is about more than conflicts of interest (Rule 1.7), but that is where it arises most.
A risk of adversity is a consentable conflict – the lawyer can undertake the representation if all parties give informed consent.
Informed consent = the agreement by a person to a proposed course of conduct after the lawyer has communicated reasonably adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.
Multiple Representation Conflict Waiver = used when representing both buyer and seller, husband and wife, client and lender (may arise if lender asks for advice or question concerning transaction)
Existing business relationships create conflicts of interest where the business is involved in a transaction of your client. The loyalty analysis involves all parties, not just clients.
B. Competence
Rule 1.1 requires lawyers to provide competent representation to clients. Competent representation requires legal knowledge, skill, thoroughness and preparation.
Mistakes are not always misconduct – but mistakes caused by inadequate knowledge or preparation can be.
C. Truthfulness
A lawyer’s obligation to be honest and truthful requires more than merely avoiding false statements of material fact (Rule 4.1); it also requires candor (3.3), avoiding misrepresentations (8.4), and avoiding misleading, deceptive or unfair communications (7.1).
D. Supervision
Rule 5.5 prohibits assisting in the unauthorized practice of law. Rule 5.3 requires lawy
ntee’s heirs successors and assigns forever.”
· Words of Inheritance
“to Grantee, his heirs and assigns forever”
Limiting language is necessary in almost all deeds; otherwise the seller would be in the position of warranting that the title is perfect.
By common law – deeds w/o words of inheritance could at most convey life estates.
§ 27-5-130: All deeds executed after January 1, 1994 do not require words of inheritance to convey fee simple title.
Stylecraft Inc. v. Thomas
· Where the granting clause conveys fee simple title, the estate cannot be “cut down” by subsequent words in the same instrument
You cannot “cut down the fee”
· If you draft limiting language in a deed, you must put it before the granting clause.
· Limiting language will not be effective if it follows the granting clause, regardless of whether the granting clause contains words of inheritance.
Execution Requirements:
For a conveyance to be effective, it must have consideration, be delivered to the grantee, and be recorded in accordance with the recording statute.
Ashy v. ACHI Investments [Tony owned some property and discussed conveying it to Ramon; Ramon met with his lawyer and discussed the needed documents; Ramon took Tony to the law firm and Tony signed several documents: Tony was not paid at the time but the deed was held in escrow; Tony asserts he didn’t know what he was signing and the deed is invalid for lack of consideration]
· A deed is not legally effective until it has ben delivered; however, a deed to a grantee or in escrow intending to part with control over the property allows the fee to pass immediately to the grantees named within the deed
· An “escrow” is a deed delivered to a third person upon a future condition to be performed by either party.
· Generally, courts hold that one cannot complain of fraud in the misrepresentation of the contents of a written instrument signed by him when the truth could have been ascertained by reading the instrument
Exception: when the party is ignorant and unwary (consider education, experience, etc.)
Donnan v. Mariner & Parker [Jean and Samuel married and Jean conveyed a one-half interest in the Walhalla house to him; Samuel executed a deed conveying his interest in the house to his daughters; he instructed his lawyer to keep it from Jean and execute the deed after his death; Samuel passed away, the lawyer recorded the deed, and Jean questioned the validity]
· A deed is not legally effective until it has been delivered. The term delivery refers to “not so much a manual act but the intention of the maker . . . existing at the time of the transaction . . . and not subject to later change of mind.” Intent to vest the title in the grantee!
· Here, Samuel did not intend to part with control of the properties during his lifetime and thus the deed is invalid.
The Statutory Deed form is found under § 27-7-10, but it is not required.
Any form is sufficient if:
i. Intention to convey can be ascertained
ii. There is a seal
iii. 2 witnesses
