Federal Issues
OCC Issues Foreclosure Management Guidance and Requires File Reviews by September 30. On June 30, the Office of the Comptroller of the Currency (OCC) issued guidance to communicate the OCC’s expectations for the oversight and management of mortgage foreclosure activities by national banks. Most significantly, the Guidance requires that all national banks, by September 30, complete self-assessments of their foreclosure practices to ensure that the practices conform to the agency’s expectations. The self-assessments must include "testing and file reviews" of foreclosure activity. For a more detailed discussion on the OCC’s guidance, please view BuckleySandler’s Client Alert here: Client Alert: OCC Issues Foreclosure Management Guidance
Additionally, for banks and mortgage servicer subscribers to InfoBytes, BuckleySandler is pleased to announce a timely and informative webinar on this topic. The webinar will explain the key aspects of the OCC guidance and provide insights for banks to develop and implement a proactive action plan to satisfy requirements set by the OCC. The Webinar will be held Wednesday, July 13, 2011 at 2:00 PM EDT. If you work for a bank or mortgage servicer and would like to attend, please click this link to sign up: https://www1.gotomeeting.com/register/646465048.
Federal Reserve Board and FTC Issue Rules to Implement Dodd-Frank Credit Disclosure Requirements. On July 6, the Federal Reserve Board and the Federal Trade Commission issued final rules to implement the credit score disclosure requirements of the Dodd-Frank Act. Under the new rules, if a creditor uses a consumer report: (i) to grant or extend credit to a consumer on terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from that creditor; or (ii) in taking an adverse credit action (such as a denial or revocation of credit, a refusal to extend credit or a change in the terms of an existing credit arrangement), then the creditor is required to disclose credit scores and related information to the consumer in notices under the Fair Credit Reporting Act (FCRA). The final rules amend Regulation V of the FCRA and also amend certain model notices in Regulation B of the Equal Credit Opportunity Act. The final rules will become effective 30 days after publication in the Federal Register. Click here for a copy of the press release.
Supervisory Guidance on Counterparty Credit Risk Management. On July 5, the Federal Reserve Board (FRB), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) jointly issued Supervisory Guidance on Counterparty Credit Risk, which consolidates existing guidance regarding counterparty credit risk (CCR). The guidance sets supervisory expectations and sound practices for an effective CCR management framework. The guidance emphasizes that banks should use reporting metrics appropriate for the institution’s risk profile, have well-developed and comprehensive stress testing, and maintain systems that facilitate measurement and aggregation of CCR throughout the organization. The guidance primarily applies to banks with significant derivatives portfolios, referred to as large dealer banking organizations, but other banks with significant CCR exposures should tailor the guidance to fit the complexity and risk profile of their derivatives activities. For a copy of the guidance, please see http://www.fdic.gov/news/news/financial/2011/fil11053.html#cont.
SEC Provides Interim Relief and Exemptions for Security-Based Swaps. On July 1, the Securities and Exchange Commission (SEC) provided guidance clarifying which securities laws will apply to security-based swaps when Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) takes effect on July 16. The SEC approved an order providing temporary relief from a substantial number of the Exchange Act requirements applicable to securities, as well as relief from laws allowing the voiding of contracts which violate these Exchange Act requirements. The SEC also approved an interim final rule providing exemptions from the Securities Act (other than Section 17(a) anti-fraud provisions), the Trust Indenture Act, and other federal securities laws in order to allow certainsecurity-based swaps to continue as they did before the Dodd-Frank Act. The interim final rule will remain in effect until the SEC adopts rules further defining "security-based swap" and "eligible contract participant." For a copy of the press release, please see http://www.sec.gov/news/press/2011/2011-141.htm.
Freddie Mac Announces Servicing Alignment Initiative; Addresses Hawaiian Foreclosure Law Changes. On June 30, the Federal Home Loan Mortgage Corporation (Freddie Mac) issued Bulletin 2011-11, which announced its Servicing Alignment Initiative and alerted servicers to updates in its servicing guidelines necessitated by recent legislative changes to Hawaii’s non-judicial foreclosure process. Through its Servicing Alignment Initiative, Freddie Mac hopes to streamline and simplify its servicing processes in order to provide more delinquent borrowers with alternatives to foreclosure. Under the initiative, Freddie Mac will revise its (i) collection efforts requirements, including its call center and contact performance standards, (ii) borrower solicitation process, (iii) servicer evaluation standards, (iv) borrower communication and evaluation process, (v) dual tracking procedures, (vi) property inspection requirements, (vii) income and hardship documentation requirements, (viii) state foreclosure timelines, and (ix) state foreclosure fee schedule. In addition, Freddie Mac will establish new processes for elevating borrower complaints and will set new "quality right party contact" ("when a Servicer establishes a rapport with the Borrower, and expresses empathy and a desire to help identify and discuss the most appropriate options for Delinquency resolution") and performance standards. All of these changes become effective on October 1, 2011 unless otherwise noted in the Bulletin. Additionally, the Bulletin outlines recent changes that servicers must commence all new Freddie Mac foreclosures in Hawaii as judicial foreclosures and must convert any Hawaiian non-judicial foreclosure that has not proceeded to a foreclosure sale into a judicial foreclosure. In addition, Freddie Mac will require servicers to re-foreclose recent REO acquisitions under certain circumstances. As a result of these changes, Freddie Mac is considering modifying its attorney fee schedule. All changes to Freddie Mac’s foreclosure process in Hawaii are effective immediately. For a copy of the Bulletin, please click here.
Federal Reserve Board Issues Final Rule on Debit Card Interchange Fees and Routing. On June 29, the Federal Reserve Board (FRB) issued a final rule establishing standards for debit card interchange fees as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule (i) establishes standards for reasonable and proportional interchange transaction fees for electronic debit transactions; (ii) implements exemptions from the newly established fee limitations for debit card issuers with assets less than $10 billion; (iii) prohibits payment card network and exclusivity arrangements and routing restrictions for debit card transactions; and (iv) establishes reporting requirements for payment card networks and debit card issuers. The effective date for the network exclusivity prohibition is April 1, 2012, with respect to issuers, and October 1, 2011, with respect to payment card networks. Issuers of certain health-related and other benefit cards and general-use prepaid cards have a delayed effective date of April 1, 2013, or later in certain circumstances. For a copy of the press release announcing the final rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm.
Courts
Indiana Supreme Court Shields Junior Lien Not Terminated in Foreclosure. On June 29, the Indiana Supreme Court held that the interest of a junior lienholder not joined in a foreclosure action preceding the transfer of the subject property could not be foreclosed. Citizens State Bank of New Castle v. Countrywide Home Loans, No. 76S03-1009-CV-515 (Ind. 2011). In this case, the plaintiff Countrywide Home Loans (Countrywide) foreclosed on a first lien without knowledge of the existence of a junior position judgment lien based on an unpaid promissory note executed by the mortgagors in favor of Citizens State Bank of New Castle (Citizens Bank). Countrywide did not name Citizens Bank as a party to its foreclosure action. Countrywide was the successful bidder at the sheriff’s sale, and then conveyed title to the property to the Federal National Mortgage Association (Fannie Mae) by way of a limited warranty deed. Subsequently, Countrywide discovered the Citizens Bank judgment lien, and filed an action seeking, among other things, to foreclose any interest that Citizens Bank may have had in the property. Citizens Bank responded, and filed a separate complaint against Fannie Mae seeking to foreclose its judgment lien. The actions were consolidated, and the trial court ordered Citizens Bank to redeem Countrywide’s mortgage immediately or be barred from asserting its judgment lien. The Court of Appeals reversed, holding that Countrywide’s lien was extinguished and could no longer be asserted against Citizens Bank. The Supreme Court also reversed the judgment of the trial court, but based on the doctrine of merger. The court noted that a junior lienholder who is not made a party to a foreclosure action is not bound by it, and the purchaser at the foreclosure sale takes interest subject to all existing liens and claims against the property. In other words, Citizens Bank’s interest remained and became fully secured in the senior position. The court observed that equitable remedies like the one Countrywide sought may be appropriate in cases where, for example, a junior lienholder is omitted because of an indexing error by the court clerk’s office, but it refused to excuse Countrywide’s oversight. The dissent characterized the decision as an "unconscionable windfall for the junior lienholder," and cited to Indiana precedent that held that the senior lienholder remained entitled to sue to foreclose that interest. The dissent also noted with approval the view of the authors of the Restatement (Third) of Property that the doctrine of merger should not apply to mortgages. Click here for a copy of the opinion.
Massachusetts Supreme Court Analyzes Activities of National Title Vendor as Possible Unauthorized Practice of Law. Recently, the Supreme Court of Massachusetts decided Real Estate Bar Association for Massachusetts v. National Real Estate Information Services, 459 Mass. 512 (Mass. 2011), which addressed claims of unauthorized practice of law in Massachusetts real estate conveyancing. The court concluded that certain real estate settlement activities undertaken by the defendants, National Real Estate Information Services (NREIS), did not constitute the unauthorized practice of law, but also stated that based on the record before the court, it could not determine whether other settlement activities constituted the unauthorized practice of law. The court acknowledged the impossibility of a comprehensive definition of the practice of law, but stated "[t]he practice of law involves applying legal judgment to address a client’s individualized needs."
The plaintiffs, the Real Estate Bar Association for Massachusetts (REBA), an association of real estate lawyers, sued the defendants, a real estate settlement services provider and title insurance agency, on the grounds that the defendants engaged in the unauthorized practice of law. The defendants described the activities as facilitating mortgage transactions for its lender clients, services it claims are "managerial, administrative, clerical or ministerial."
Mortgage transactions are conveyancing transactions in Massachusetts. Conveyancing, according to the Black’s Law Dictionarydefinition cited by the Court, is the act or business of drafting and preparing legal instruments, especially those that transfer an interest in real property. However, the Court rejected the notion that "conveyancing" is a unitary, indivisible activity. "Many of the discrete services and activities that may fall within the penumbra of modern conveyancing do not qualify as the practice of law."
Among the activities held not to be the practice of law in this decision are: (i) conducting title examinations and preparing title abstracts, (ii) obtaining public records such as municipal lien certificates, property appraisals and flood reports, (iii) preparing HUD-1 settlement statements, (iv) reviewing mortgage loan documents to ensure valid execution, (v) delivering documents to the registry of deeds for recordation, (vi) disbursing mortgage loan proceeds, and (vii) issuing title insurance commitments and policies.
Activities that do constitute the practice of law include providing opinions or advice regarding marketability of title to real estate and drafting deeds to real property.
Activities that may or may not constitute the practice of law include clearing title defects and placing oneself as an intermediary between attorney and client or facilitating the relationship between attorney and client.
The Court reconfirmed the established practice in Massachusetts that an attorney must conduct real estate closings in the state. "As a matter of common and long-standing practice in the Commonwealth, an attorney must be involved in the closing or settlement of real property conveyances.... The closing is ... a critical step in the transfer of title and the creation of significant legal and real property rights. Because this is so, we believe that a lawyer is a necessary participant at the closing to direct the proper transfer of title and consideration and to document the transaction...." Moreover, the attorney must do more than simply appear at the closing; he or she must "play a meaningful role" in the closing because of his professional responsibility to ensure (1) that marketable title is conveyed, and (2) that the consideration for the conveyance is transferred. Click here for a copy of the opinion.
Firm News
Please Join Us for a Complimentary Webinar, "The Regulatory Response to the Foreclosure Crisis: What Bank Servicers Need to Do to Meet the OCC’s September 30 Deadline"
As previously noted in this issue of InfoBytes, the OCC has issued new supervisory guidance requiring all banks under its supervision - meaning both national banks and federal thrifts - to review foreclosure practices and procedures, ensure appropriate oversight and management of this critical servicing function, and conduct a self-assessment, including foreclosure file reviews by September 30, 2011.
In response, BuckleySandler is pleased to announce a timely and informative webinar for bank and mortgage servicing subscribers to InfoBytes that will explain the key aspects of the OCC guidance and provide insights for banks to develop and implement a proactive action plan to satisfy requirements set by the OCC.
The Webinar will be held Wednesday, July 13, 2011 at 2:00 PM EDT. If you work for a bank or mortgage servicer and would like to attend, please click here to sign up.
Cost: There is no charge to attend this webinar.
The webinar presenters will be Andrew L. Sandler, Jonice Gray Tucker, Robyn C. Quattrone, and Joseph J. Reilly.
Andrew L. Sandler and Jonice Gray Tucker will speak during an American Bar Association webinar on mortgage servicing issues on July 21 at 1:00 p.m. The webinar, which is entitled "Mortgage Servicing Under Fire: Regulatory, Litigation, and Enforcement Trends Stemming from the Foreclosure Crisis and More" will also feature Terry Goddard, the former Arizona Attorney General, as a speaker.
Andrew L. Sandler will be teaching the Litigation Strategy Session: Developing Strong Protocols, Admissible Documentation & Comprehensive Strategies in Order to Survive Regulatory Enforcement Actions & Litigation Workshop on July 26, in Chicago. This workshop precedes ACI’s Consumer Finance Class Actions & Litigation Conference taking place on July 27-28 at the Sutton Place Hotel in Chicago.
Andrew L. Sandler will be speaking at the ACI’s Consumer Finance Class Actions & Litigation Conference on July 28. Mr. Sandler’s panel is: "Class Action Developments: What Recent Cases and Pending Policy Changes Mean for Your Litigation, Investigation and Settlement Strategies."
James Parkinson will speak on the Foreign Corrupt Practices Act as a Visiting Lecturer at Universidad Panamericana, Mexico on August 25.
Jonice Gray Tucker will be moderating a panel focusing on Regulatory and Litigation Developments in Servicing at the California Mortgage Bankers’ Servicing Conference on August 29 in Las Vegas.
Firm Publications
John Kromer and Melissa Klimkiewicz authored OCC Issues Proposed Rule to Implement Dodd-Frank Preemption, which was published in the June 22 issue of Consumer Financial Services Law Report.
Jonathan Cannon authored The Recent Detroit Lending Discrimination Settlement, which was published in the June 20 issue of Westlaw Journal.
Miscellany
United States Files Civil Suit Against Mortgage Insurer Alleging Discrimination Against Women On Maternity Leave. On July 5, the U.S. Attorney’s Office for the Western District of Pennsylvania filed a civil lawsuit against mortgage insurer Mortgage Guaranty Insurance Corporation (MGIC), and two of MGIC’s underwriters, for allegedly violating the Fair Housing Act by discriminating against women on paid maternity leave. MGIC allegedly required women to return to work following maternity leave before MGIC was willing to insure mortgages issued to those women. The requirement allegedly constituted illegal sex and family status discrimination. The suit follows a complaint made to the Department of Housing and Urban Development by a Pennsylvania loan applicant. The suit seeks a court order prohibiting future discrimination, penalties, and damages. For a copy of the Department of Justice’s press release, please see http://www.justice.gov/opa/pr/2011/July/11-crt-880.html.
Mortgages
OCC Issues Foreclosure Management Guidance and Requires File Reviews by September 30. On June 30, the Office of the Comptroller of the Currency (OCC) issued guidance to communicate the OCC’s expectations for the oversight and management of mortgage foreclosure activities by national banks. Most significantly, the Guidance requires that all national banks, by September 30, complete self-assessments of their foreclosure practices to ensure that the practices conform to the agency’s expectations. The self-assessments must include "testing and file reviews" of foreclosure activity. For a more detailed discussion on the OCC’s guidance, please view BuckleySandler’s Client Alert here
Client Alert: OCC Issues Foreclosure Management Guidance.
Additionally, for banks and mortgage servicer subscribers to InfoBytes, BuckleySandler is pleased to announce a timely and informative webinar on this topic. The webinar will explain the key aspects of the OCC guidance and provide insights for banks to develop and implement a proactive action plan to satisfy requirements set by the OCC. The Webinar will be held Wednesday, July 13, 2011 at 2:00 PM EDT. If you work for a bank or mortgage servicer and would like to attend, please click this link to sign up:
https://www1.gotomeeting.com/register/646465048.
Freddie Mac Announces Servicing Alignment Initiative; Addresses Hawaiian Foreclosure Law Changes. On June 30, the Federal Home Loan Mortgage Corporation (Freddie Mac) issued Bulletin 2011-11, which announced its Servicing Alignment Initiative and alerted servicers to updates in its servicing guidelines necessitated by recent legislative changes to Hawaii’s non-judicial foreclosure process. Through its Servicing Alignment Initiative, Freddie Mac hopes to streamline and simplify its servicing processes in order to provide more delinquent borrowers with alternatives to foreclosure. Under the initiative, Freddie Mac will revise its (i) collection efforts requirements, including its call center and contact performance standards, (ii) borrower solicitation process, (iii) servicer evaluation standards, (iv) borrower communication and evaluation process, (v) dual tracking procedures, (vi) property inspection requirements, (vii) income and hardship documentation requirements, (viii) state foreclosure timelines, and (ix) state foreclosure fee schedule. In addition, Freddie Mac will establish new processes for elevating borrower complaints and will set new "quality right party contact" ("when a Servicer establishes a rapport with the Borrower, and expresses empathy and a desire to help identify and discuss the most appropriate options for Delinquency resolution") and performance standards. All of these changes become effective on October 1, 2011 unless otherwise noted in the Bulletin. Additionally, the Bulletin outlines recent changes that servicers must commence all new Freddie Mac foreclosures in Hawaii as judicial foreclosures and must convert any Hawaiian non-judicial foreclosure that has not proceeded to a foreclosure sale into a judicial foreclosure. In addition, Freddie Mac will require servicers to re-foreclose recent REO acquisitions under certain circumstances. As a result of these changes, Freddie Mac is considering modifying its attorney fee schedule. All changes to Freddie Mac’s foreclosure process in Hawaii are effective immediately. For a copy of the Bulletin, please click here.
Banking
Supervisory Guidance on Counterparty Credit Risk Management. On July 5, the Federal Reserve Board (FRB), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) jointly issued Supervisory Guidance on Counterparty Credit Risk, which consolidates existing guidance regarding counterparty credit risk (CCR). The guidance sets supervisory expectations and sound practices for an effective CCR management framework. The guidance emphasizes that banks should use reporting metrics appropriate for the institution’s risk profile, have well-developed and comprehensive stress testing, and maintain systems that facilitate measurement and aggregation of CCR throughout the organization. The guidance primarily applies to banks with significant derivatives portfolios, referred to as large dealer banking organizations, but other banks with significant CCR exposures should tailor the guidance to fit the complexity and risk profile of their derivatives activities. For a copy of the guidance, please see http://www.fdic.gov/news/news/financial/2011/fil11053.html#cont.
Federal Reserve Board Issues Final Rule on Debit Card Interchange Fees and Routing. On June 29, the Federal Reserve Board (FRB) issued a final rule establishing standards for debit card interchange fees as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule (i) establishes standards for reasonable and proportional interchange transaction fees for electronic debit transactions; (ii) implements exemptions from the newly established fee limitations for debit card issuers with assets less than $10 billion; (iii) prohibits payment card network and exclusivity arrangements and routing restrictions for debit card transactions; and (iv) establishes reporting requirements for payment card networks and debit card issuers. The effective date for the network exclusivity prohibition is April 1, 2012, with respect to issuers, and October 1, 2011, with respect to payment card networks. Issuers of certain health-related and other benefit cards and general-use prepaid cards have a delayed effective date of April 1, 2013, or later in certain circumstances. For a copy of the press release announcing the final rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm.
Consumer Finance
Federal Reserve Board and FTC Issue Rules to Implement Dodd-Frank Credit Disclosure Requirements. On July 6, the Federal Reserve Board and the Federal Trade Commission issued final rules to implement the credit score disclosure requirements of the Dodd-Frank Act. Under the new rules, if a creditor uses a consumer report: (i) to grant or extend credit to a consumer on terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from that creditor; or (ii) in taking an adverse credit action (such as a denial or revocation of credit, a refusal to extend credit or a change in the terms of an existing credit arrangement), then the creditor is required to disclose credit scores and related information to the consumer in notices under the Fair Credit Reporting Act (FCRA). The final rules amend Regulation V of the FCRA and also amend certain model notices in Regulation B of the Equal Credit Opportunity Act. The final rules will become effective 30 days after publication in the Federal Register. Click here for a copy of the press release.
Securities
SEC Provides Interim Relief and Exemptions for Security-Based Swaps. On July 1, the Securities and Exchange Commission (SEC) provided guidance clarifying which securities laws will apply to security-based swaps when Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) takes effect on July 16. The SEC approved an order providing temporary relief from a substantial number of the Exchange Act requirements applicable to securities, as well as relief from laws allowing the voiding of contracts which violate these Exchange Act requirements. The SEC also approved an interim final rule providing exemptions from the Securities Act (other than Section 17(a) anti-fraud provisions), the Trust Indenture Act, and other federal securities laws in order to allow certainsecurity-based swaps to continue as they did before the Dodd-Frank Act. The interim final rule will remain in effect until the SEC adopts rules further defining "security-based swap" and "eligible contract participant." For a copy of the press release, please see http://www.sec.gov/news/press/2011/2011-141.htm.
Insurance
United States Files Civil Suit Against Mortgage Insurer Alleging Discrimination Against Women On Maternity Leave. On July 5, the U.S. Attorney’s Office for the Western District of Pennsylvania filed a civil lawsuit against mortgage insurer Mortgage Guaranty Insurance Corporation (MGIC), and two of MGIC’s underwriters, for allegedly violating the Fair Housing Act by discriminating against women on paid maternity leave. MGIC allegedly required women to return to work following maternity leave before MGIC was willing to insure mortgages issued to those women. The requirement allegedly constituted illegal sex and family status discrimination. The suit follows a complaint made to the Department of Housing and Urban Development by a Pennsylvania loan applicant. The suit seeks a court order prohibiting future discrimination, penalties, and damages. For a copy of the Department of Justice’s press release, please see http://www.justice.gov/opa/pr/2011/July/11-crt-880.html.
Litigation
Indiana Supreme Court Shields Junior Lien Not Terminated in Foreclosure. On June 29, the Indiana Supreme Court held that the interest of a junior lienholder not joined in a foreclosure action preceding the transfer of the subject property could not be foreclosed. Citizens State Bank of New Castle v. Countrywide Home Loans, No. 76S03-1009-CV-515 (Ind. 2011). In this case, the plaintiff Countrywide Home Loans (Countrywide) foreclosed on a first lien without knowledge of the existence of a junior position judgment lien based on an unpaid promissory note executed by the mortgagors in favor of Citizens State Bank of New Castle (Citizens Bank). Countrywide did not name Citizens Bank as a party to its foreclosure action. Countrywide was the successful bidder at the sheriff’s sale, and then conveyed title to the property to the Federal National Mortgage Association (Fannie Mae) by way of a limited warranty deed. Subsequently, Countrywide discovered the Citizens Bank judgment lien, and filed an action seeking, among other things, to foreclose any interest that Citizens Bank may have had in the property. Citizens Bank responded, and filed a separate complaint against Fannie Mae seeking to foreclose its judgment lien. The actions were consolidated, and the trial court ordered Citizens Bank to redeem Countrywide’s mortgage immediately or be barred from asserting its judgment lien. The Court of Appeals reversed, holding that Countrywide’s lien was extinguished and could no longer be asserted against Citizens Bank. The Supreme Court also reversed the judgment of the trial court, but based on the doctrine of merger. The court noted that a junior lienholder who is not made a party to a foreclosure action is not bound by it, and the purchaser at the foreclosure sale takes interest subject to all existing liens and claims against the property. In other words, Citizens Bank’s interest remained and became fully secured in the senior position. The court observed that equitable remedies like the one Countrywide sought may be appropriate in cases where, for example, a junior lienholder is omitted because of an indexing error by the court clerk’s office, but it refused to excuse Countrywide’s oversight. The dissent characterized the decision as an "unconscionable windfall for the junior lienholder," and cited to Indiana precedent that held that the senior lienholder remained entitled to sue to foreclose that interest. The dissent also noted with approval the view of the authors of the Restatement (Third) of Property that the doctrine of merger should not apply to mortgages. Click here for a copy of the opinion.
Massachusetts Supreme Court Analyzes Activities of National Title Vendor as Possible Unauthorized Practice of Law. Recently, the Supreme Court of Massachusetts decided Real Estate Bar Association for Massachusetts v. National Real Estate Information Services, 459 Mass. 512 (Mass. 2011), which addressed claims of unauthorized practice of law in Massachusetts real estate conveyancing. The court concluded that certain real estate settlement activities undertaken by the defendants, National Real Estate Information Services (NREIS), did not constitute the unauthorized practice of law, but also stated that based on the record before the court, it could not determine whether other settlement activities constituted the unauthorized practice of law. The court acknowledged the impossibility of a comprehensive definition of the practice of law, but stated "[t]he practice of law involves applying legal judgment to address a client’s individualized needs."
The plaintiffs, the Real Estate Bar Association for Massachusetts (REBA), an association of real estate lawyers, sued the defendants, a real estate settlement services provider and title insurance agency, on the grounds that the defendants engaged in the unauthorized practice of law. The defendants described the activities as facilitating mortgage transactions for its lender clients, services it claims are "managerial, administrative, clerical or ministerial."
Mortgage transactions are conveyancing transactions in Massachusetts. Conveyancing, according to the Black’s Law Dictionarydefinition cited by the Court, is the act or business of drafting and preparing legal instruments, especially those that transfer an interest in real property. However, the Court rejected the notion that "conveyancing" is a unitary, indivisible activity. "Many of the discrete services and activities that may fall within the penumbra of modern conveyancing do not qualify as the practice of law."
Among the activities held not to be the practice of law in this decision are: (i) conducting title examinations and preparing title abstracts, (ii) obtaining public records such as municipal lien certificates, property appraisals and flood reports, (iii) preparing HUD-1 settlement statements, (iv) reviewing mortgage loan documents to ensure valid execution, (v) delivering documents to the registry of deeds for recordation, (vi) disbursing mortgage loan proceeds, and (vii) issuing title insurance commitments and policies.
Activities that do constitute the practice of law include providing opinions or advice regarding marketability of title to real estate and drafting deeds to real property.
Activities that may or may not constitute the practice of law include clearing title defects and placing oneself as an intermediary between attorney and client or facilitating the relationship between attorney and client.
The Court reconfirmed the established practice in Massachusetts that an attorney must conduct real estate closings in the state. "As a matter of common and long-standing practice in the Commonwealth, an attorney must be involved in the closing or settlement of real property conveyances.... The closing is ... a critical step in the transfer of title and the creation of significant legal and real property rights. Because this is so, we believe that a lawyer is a necessary participant at the closing to direct the proper transfer of title and consideration and to document the transaction...." Moreover, the attorney must do more than simply appear at the closing; he or she must "play a meaningful role" in the closing because of his professional responsibility to ensure (1) that marketable title is conveyed, and (2) that the consideration for the conveyance is transferred. Click here for a copy of the opinion.