Countrywide Home Loans v. Kentucky Bar, 2000-SC-0206-KB.
| Decision Date | 21 August 2003 |
| Docket Number | No. 2000-SC-0208-KB.,No. 2000-SC-0209-KB.,No. 2000-SC-0207-KB.,No. 2000-SC-0206-KB.,2000-SC-0206-KB.,2000-SC-0207-KB.,2000-SC-0208-KB.,2000-SC-0209-KB. |
| Citation | 113 S.W.3d 105 |
| Parties | COUNTRYWIDE HOME LOANS, INC. and LandSafe Services, Inc., Appellants, v. KENTUCKY BAR ASSOCIATION, Appellee. Kentucky Land Title Association, Appellant, v. Kentucky Bar Association, Appellee. Kentucky Association of Realtors, Inc. and Home Builders Association of Kentucky, Inc., Appellants, v. Kentucky Bar Association, Appellee. Kentucky Bankers Association, Appellant, v. Kentucky Bar Association, Appellee. |
| Court | United States State Supreme Court — District of Kentucky |
Richard A. Vance, Stites and Harbison, Louisville, Counsel for Appellants, Countrywide Home Loans, Inc. and Landsafe Services, Inc.
Gregory P. Parsons, J. Jeffrey Patterson, Stites and Harbison, Lexington, Counsel for Appellant, Kentucky Land Title Association.
Matthew R. Hall, U.S. Department of Justice, Civil Division, John P. Fonte, Joel I. Klein, Assistant Attorney General, A. Douglas Melamed, Deputy Assistant Attorney General, Robert B. Nicholson, Jessica N. Butler-Arkow, U.S. Department of Justice, Washington, D.C., Counsel for United States of America, Amicus Curiae.
Glenn E. Acree, Glenn Acree law Office, Lexington, Counsel for Appellants, Kentucky Associaton of Realtors, Inc. and Home Builders Association of Kentucky, Inc.
John T. McGarvey, M. Thurman Senn, Morgan and Pottinger, PSC, Debra K. Stamper, Vice President and General Counsel, Kentucky Bankers Association, Louisville, Counsel for Appellant, Kentucky Bankers Association.
Benjamin Cowgill, Bruce K. Davis, Executive Director, Reid Allen Glass, Kentucky Bar Association, Frankfort, Counsel for Appellee, Kentucky Bar Association.
On March 1, 2000, Movants, Countrywide Home Loans, Inc. ("Countrywide") and LandSafe Services, Inc. ("LandSafe"), Kentucky Land Title Association ("KLTA"), and Kentucky Association of Realtors, Inc. ("KAR") and Home Builders Association of Kentucky, Inc. ("HBAK"), moved under SCR 3.530(5)1 for this Court to review Advisory Opinion U-58, adopted by the Kentucky Bar Association ("KBA") Board of Governors in November 1999 and published in the January 2000 issue of Kentucky Bench & Bar. U-58 declares that performance of a real estate closing by a lay closing agent is the unauthorized practice of law. Movants request that the Court vacate U-58, and, in support of that request, argue that U-58 is contradictory to both public policy and U-31, a previous advisory opinion that had allowed laypersons to conduct real estate closings subject to certain limitations. On March 2, 2000, Movant, Kentucky Bankers Association ("Bankers"), filed a similar motion and requested that this Court clarify that U-58 does not change U-31 to the extent that the earlier opinion permitted banks and other lending institutions to close real estate transactions when they provide lender services. We granted the motions to review U-58, allowed the parties to take evidence, and heard oral argument on the issues. We now vacate U-58 and hold that U-31 accurately states the law regarding lay closing agents' ability to perform real estate closings in Kentucky.
The Unauthorized Practice Committee of the KBA may submit to the KBA Board of Governors recommendations for advisory opinions delineating what activities constitute the unauthorized practice of law.2 If the recommended opinion is approved by three-fourths of the Board of Governors, it carries the weight of an advisory opinion.3 This Court, however, is not bound by its terms. On proper request by an aggrieved party, we have the authority to evaluate the opinion and determine whether it accurately states the law.4 Movants made such a request in this case as to U-58, and we therefore decide whether the conduct of a real estate closing by a lay closing agent is the unauthorized practice of law. We begin with a discussion of the development of U-58.
In 1981, the Kentucky Bar Association Board of Governors rendered Opinion KBA U-31, which addresses essentially the same issue that was later addressed in U-58 and that is now presented for our review. U-31 asked:
Does a real estate mortgage lender, or a title insurance company on behalf of a real estate mortgage lender, commit the unauthorized practice of law by performing the ministerial acts necessary in the closing of a real estate loan?5
The Board of Governors answered with a "qualified no." Essentially, U-31 permitted laypersons to conduct real estate closings so long as they avoided giving legal advice. Specifically, the opinion instructed that when a question of a legal nature is asked at a closing "the lay person should discontinue the closing and seek proper legal advice."6 In reaching this conclusion, the Board of Governors recognized that 7 The Board did, however, offer a warning that "[f]ederal loans involve significant knowledge of the law, and questions as to what is meant in the documents would certainly involve the unauthorized practice of law."8
More than fifteen years after the Board of Governors issued that warning, the role of non-lawyer closing agents was again at issue. Marcus Carey, chairperson of the KBA's Unauthorized Practice Committee, was advised by several Kentucky real estate attorneys of their concerns that title insurance companies and title agencies might be engaged in the unlawful practice of law when they closed real estate transactions without the participation of or supervision by licensed attorneys. Carey determined that this was the type of issue that his committee was charged with addressing and raised the issue before the Unauthorized Practice Committee.
When the issue was raised, several attorneys showed an interest in assisting the Committee and the KBA in resolving the issue, and they formed an ad hoc committee, which researched the issues and drafted a proposed opinion. After some nine or more drafts of the opinion, this ad hoc committee submitted its opinion to Carey and his Unauthorized Practice Committee on August 2, 1997. The opinion underwent several changes during floor debates in the Committee, but was eventually submitted to the KBA Board of Governors for its approval. The Board rejected the opinion, returning it to the committee for further review and consideration.
After the draft opinion's rejection, the ad hoc committee disbanded. Still, there was concern that title insurance companies and title agencies were involved in the unauthorized practice of law. The Unauthorized Practice Committee thus continued its work on the issue, and, in 1999, the Committee submitted a revised opinion to the Board of Governors. The opinion was adopted by the Board in November 1999, and it was published as U-58 in the January 2000 issue of Kentucky Bench & Bar.
After the opinion was published, petitioners moved this Court, under the authority of SCR 3.530(5), to evaluate U-58. They urge us to review and vacate U-58 and reinstate U-31 as the law on layperson-conducted real estate closings in Kentucky. We begin our evaluation of U-58 with the text of the opinion.
U-58
Question: May real estate closings be conducted by persons who are not real parties in interest without direct supervision of a licensed attorney?
Answer: No.
Question: May title agencies or title insurance companies conduct real estate closings?
Answer: No.
Only licensed attorneys may practice law in Kentucky. The practice is regulated exclusively by the court. The compelling reason for such regulation is to protect the public against rendition of legal services by unqualified persons. Kentucky Rule of Professional Conduct (RPC) 5.5. The practice of law is defined by SCR 3.020 as any service: "involving legal knowledge or legal advice, whether of representation, counsel or advocacy in or out of court, rendered in respect to the rights, duties, obligations, liabilities, or business relations of one requiring the services."
The "unauthorized" practice of law is the performance by those services contained in the definition by "non-lawyers" for "others."
It is not the unauthorized practice of law for a party to a real estate transaction to represent himself or to prepare closing documents to which he is a real party in interest, provided that no fee is charged to any other party. SCR 3.020. Otherwise only a licensed attorney may represent a closing party, prepare conveyancing or mortgage instruments, or charge a fee for legal services related to a real estate transaction. Frazee v. Citizens Fidelity Bank & Trust Co., 393 S.W.2d 778 (Ky.1965); Federal Intermediate Credit Bank of Louisville v. Kentucky Bar Association, 540 S.W.2d 14 (Ky.S.Ct.1976).
Real estate closings typically have either two or three real parties in interest: seller and buyer, borrower and lender, or seller, buyer-borrower, and lender. Of these three, the least complex are the two-party closings of single sale or loan transactions involving the transfer of an interest in real estate, by deed or mortgage, for purchase money or loan proceeds. The sale of real estate financed by a third party lender is the more complex because it involves separate sale and secured loan transactions in a simultaneous closing.
The "conduct" of a closing is the culmination of such transactions. Notwithstanding the standardization of real estate closing documentation, it is unrealistic and naive to assume that, in all instances, the settlement agent can present important legal documents to the seller, buyer, borrower, and/or lender at a closing without legal questions being asked and without giving legal advice. The preparation and presentation of closing documents is an implied...
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