Ten Commandments of Real Estate Closings
- Thou shalt not walk into the deed vault nor close a real estate transaction unless thou knowest what thou art doing or thou has learned brethren or sistren to lend a helping hand. The days when "anyone can close a loan" are gone.
- Thou art not a title insurance company nor is thy malpractice carrier. Many are those, both owners and lenders, who are using the attorney as their title insurance company.
- Thou shalt document the substance of every telephone conversation involved in the transaction. Thou shalt cover thy hind parts.
- Thou shalt have a working knowledge of environmental law. And lo, there shall one day be pestilence upon the entire face of the earth and environmental law will touch every transaction.
- Verily, verily I say unto you that the closing attorney is as the hub of a wheel and each party to the transaction a spoke. If in the future any of the spokes is broken economically, ye whose name was blessed at closing shall be called, "Oh cursed one." Beware of the potential conflicts of interest that could be alleged in the future and proceed cautiously.
- Thou shalt not disburse loan proceeds before updating and recording title. 'Tis better to suffer the wrath of an angry realtor or property owner than to bury thy law license in the sand.
- Thou shalt uncover thine eyes and proofread carefully the work of those thou superviseth. If thy support staff has erred and thou hast not reviewed their work, then two errors have occurred. Many is the attorney who has suffered a claim because of a typo the size of a mustard seed.
- Thou shalt say, "Get thee behind me, Satan" if thou art pressured to perform a transaction in a way that thou thinks is improper. Do not succumb to the almighty dollar. 'Tis better to lose a closing fee than to suffer the slings of multiple claims resulting from a system breakdown because one has worshipped at the altar of the "cash cow" client.
- Thou shalt always review each instrument within the title search in its entirety. Beware the deed of trust that encumbers the property in the hidden "Attached Schedule A."
- Thou shalt never forget this real estate transaction is the biggest transaction of thy client's life. Communicate, communicate, communicate.
Real Property Proverbs
"In real estate, everyone is guilty until proven innocent."
I know all the Campbell lawyers will say I stole this proverb from Professor Rick Rogers. Well, I did. From my decade of title insurance and legal malpractice claims experience I can say that there is no more frightening trend than the increasing number of transactions involving fraud or malfeasance. Examples of these claims include: the client who brings an executed deed into your office which is in reality a forgery; the forged deed executed outside your office with the good client asking you or your support staff to notarize it anyway "just this one time;" the married couple drawing the equity out of their home, who, in fact, are "lovers" with one of them impersonating the real spouse; your long time and trusted office manager or support staff who is supplementing their income, and perhaps, unknowingly, even yours, with withdrawals from your trust account. Regrettably, it could even be your law partner.
Transactions involving fraud or malfeasance have been a rapidly growing claim area for both title insurers and malpractice carriers for the few years. Although following the advice of this proverb may cause an attorney to offend a client or appear jaded, the alternative is far more devastating. These claims often involve malpractice allegations, malpractice coverage issues, personal loans by the attorney to make up trust account shortfalls, and sometimes, disbarment.
"Ask it all, brother, Ask it all"
The title industry companies have seen a growing number of building supply companies extend financing directly to contractors, who are often small builders just starting out. In addition to securing this financing with a deed of trust, the building supply company will sometimes provide the builder with an open line of credit.
When a closing attorney calls the supply company for a payoff on the deed of trust, the contractor's balance on the open account is never mentioned. Later, after closing, the supply company files a claim of lien to collect upon the open account, triggering the coverage of the title insurance policy. In effect, the title insurer becomes the credit insurer of the contractor.
The loan may have been made for marketing reasons or as a favor to a friend or customer. This should raise a red flag. The closing attorney should ask the supply company-mortgagor if it does other business with the mortgagee. If so, the next question becomes, "is the mortgagee indebted to the mortgagor for materials, supplies or services and, if so, whether this indebtedness affect the subject property such that a lien may be asserted which will be prior to the new owner's mortgage?" If so, the closing attorney should obtain a lien waiver from the mortgagor or insist that the indebtedness be paid at closing. Asking about open supply accounts could save you embarrassment and criticism from your client. A significant North Carolina case resulted in an unpublished appellate decision indicating that it is the closing attorney's duty to "ask," not the building supply company's obligation to tell, in this situation. In any situation where a supply company's deed of trust is found, red flag is waving. Ask it all!
"All that glitters is not gold"
This is another look at the Eighth Commandment above. Many potential clients offer tantalizing business relationships to an attorney or firm. At the onset of this relationship, all parties may even be "rolling in the dough." Then, the law firm's economic well being becomes directly related to the financial success of the client. This leads to a dangerous tendency to become overly dependent upon these clients, and it becomes harder to say no when the client asks the attorney to bend the rules. Often, these are the clients and transactions for which scrutiny is lax, where the attorney lowers his guard and gets caught in a fraudulent situation such as those involving the first proverb mentioned above. Many times, the attorney may not have examined the economics of the business relationship as closely as he should have. After all, it doesn't matter if the firm is losing $25 a closing, when it is doing 50 closings a month!
I suspect that if attorneys ever leave the residential practice in North Carolina, it will not be as a result of the pressures from numerous outside forces the closing attorney is facing, although they certainly exist. If attorneys abandon the practice of real estate, it may likely be prompted by simple economics.
It would be a tragedy if that were to happen. The purchase of a home is a major event in anyone's life and, likely, the biggest economic decision most individuals ever make. Once closed, however, it is usually one of the happiest days of the purchaser's life. To allow the public to undertake such major transactions without the benefit of legal counsel is dangerous in the long run for all consumers.
You worked hard for your law license. You work hard to run your practice and meet payroll every day. Because of both the dollar amounts and complexity of real estate transactions, the daily risks you face are greater than those in many other practices of law. Yet, real estate law, in my opinion, is still the most rewarding practice. Perhaps the most important proverb I can offer to the real estate attorney in today's climate is, "Hang in there, baby!"