First Escrow, Inc., In re

• Decision Date: 27 October 1992
• Docket Number: 72688,Nos. 72686,s. 72686
• Parties: In re FIRST ESCROW, INC., Respondent. In re BEST ESCROW, INC., Respondent.
• Court: Missouri Supreme Court

Page 839

840 S.W.2d 839

In re FIRST ESCROW, INC., Respondent.

In re BEST ESCROW, INC., Respondent.

Nos. 72686, 72688.

Supreme Court of Missouri,

En Banc.

Oct. 27, 1992.

Robert O. Hetlage, Ian P. Cooper, St. Louis, for informant.

Theodore L. Johnson, III, Glenn P. Green, Springfield, for respondent First Escrow.

Terry C. Allen, Jefferson City, for respondent Best Escrow.

PRICE, Judge.

We are asked to decide whether real estate closing or settlement services provided by two escrow companies constitute the unauthorized practice of law. ¹ In Hulse v. Criger, 363 Mo. 26, 247 S.W.2d 855 (1952), the Court addressed this question as it applied to real estate brokers. It was noted in Hulse that:

The duty of this Court is not to protect the Bar from competition but to protect the public from being advised or represented in legal matters by incompetent or unreliable persons.

Id. 247 S.W.2d at 857-8. In accordance with this principle, we now hold that escrow companies may fill in the blanks of certain standardized form documents otherwise prepared or reviewed by Missouri attorneys, but only under the supervision of and as the agents for an entity with a direct financial interest in the transaction. Escrow companies may not draft legal documents, select the form of documents used, nor provide legal advice to customers directly or through attorneys they employ. ²

I.

The General Chairman of the Bar Committee filed informations charging respondents First Escrow, Inc., and Best Escrow, Inc., with the unauthorized practice of law and the unauthorized doing of law business ³ regarding the services they provide in connection with real estate closings in the Springfield area. The proceedings were consolidated and referred to The Honorable L. Glen Zahnd, Associate Circuit Judge of the Fifth Judicial Circuit, who was appointed Master by this Court. He found the following pertinent facts from a stipulated record:

(1) Respondents hold themselves out to the public as escrow and closing service companies. Neither respondents nor any of their regular employees are licensed to practice law in the State of Missouri. First Escrow has been operating a real estate closing and escrow service since 1980; Best Escrow has done so since 1985. First Escrow is licensed by the State of Missouri as a corporation real estate broker; Best Escrow is operated by a licensed real estate broker.

(2) Depending on the particular transaction, respondents complete pre-printed forms of documents, including but not limited to general warranty deeds, corporation warranty deeds, quit claim deeds, promissory notes, deeds of trust, affidavits of possession and title, HUD settlement statements and receipts, IRS Forms 1099, and property inspection certificates. Respondents discern the information needed to complete these forms from the written real estate contract and from communications with the parties and any attorneys, title insurers, or lenders involved in the transaction. Best Escrow has occasionally prepared bulk transfer notices, contracts for deed, and other nonstandard real estate contracts. First Escrow does not prepare nonstandard documents such as contracts for deed, leases, lease-purchase agreements, or wrap-around notes and deeds of trust. If the parties desire such documents and neither party has an attorney, First Escrow may request its own corporate attorney to prepare the documents for them.

(3) All forms used by respondents have been prepared or approved by an attorney licensed to practice law in the State of Missouri. Respondents make no changes to these forms except at the direction of an attorney. In transactions involving a lender the loan documents are provided or approved by the lender.

(4) Respondents ordinarily charge a flat fee for each closing whether or not any documents are prepared. This fee is usually divided equally between the parties. Respondents do not receive compensation from other service providers.

(5) Respondents do not represent themselves to the public as experts in preparing documents or as capable of giving legal advice. They do not act as lenders, title insurers, or brokers; negotiate transactions or prepare purchase and sale contracts; judge the legal sufficiency of documents, analyze legal descriptions, or advise customers as to their legal rights and obligations. Respondents' customers are usually not represented by attorneys.

(6) Brokers and lenders in the Springfield area have virtually abandoned in-house closings, particularly for residential transactions, and primarily use independent closing and escrow services such as respondents'. Further, buyers in the secondary mortgage market are requiring the use of independent closing companies. Respondents' activities are furnished in essentially the same manner as they were previously provided in-house by brokers and lenders in the Springfield area.

The Master concluded that community practice, public acceptance, and the expectations of the real estate mortgage industry make the extension of the rationale of Hulse v. Criger to escrow companies a reasonable and logical one. Thus, he held that respondents are engaged in a business separate and distinct from conveyancing; that an ancillary and essential part of this business is filling in the blanks of pre-printed forms of documents; and that this business is merely the clerical service of complying with the agreement of the parties, requiring only ordinary intelligence rather than legal skills.

The Master also made a number of specific recommendations to the Court. The general content of these recommendations can be summarized as follows:

(1) The completion of simple, standardized forms of documents is ancillary to and an essential part of the escrow closing business and, therefore, does not constitute the unauthorized practice of law.

(2) The preparation of nonstandard or specialized documents such as contracts for deed, special warranty deeds, leases, lease-purchase agreements, easement agreements, well agreements, trustee deeds, and wrap-around notes and deeds of trust is the unauthorized practice of law.

(3) Any forms used by escrow companies must be prepared or approved by legal counsel.

(4) Escrow companies may not give advice or opinions as to the legal rights of their customers, the legal effect of instruments, or the validity of titles to real estate.

We commend the Master for his thorough and comprehensive work. As discussed more specifically below, we adopt the substance of his recommendations.

II.

It is the responsibility of the judiciary to determine what constitutes the practice of law, both authorized and unauthorized. Reed v. Labor and Indus. Relations Com'n, 789 S.W.2d 19, 20 (Mo.banc 1990). Respondents' document preparation activities constitute the practice of law or the doing of law business in Missouri, ⁴ because they involve "the drawing or the procuring of or assisting in the drawing ⁵ ... of any paper or document or instrument affecting or relating to secular rights." ⁶ This conclusion is implicit in Hulse, which held that the completion of standardized forms by brokers under the circumstances stated in that case "is not unlawful practice of law." ⁷ 247 S.W.2d at 861 [emphasis added]. The question then arises, may escrow companies properly provide these legal services as the authorized practice of law?

III.

Forty years ago, the Court legitimized the common practice of real estate brokers completing standardized forms in Hulse v. Criger. Many courts have since followed what is referred to as the "incidental" or "ancillary" test set out in Hulse. ⁸ There, the Court stated:

We think the guiding principle must be whether under the circumstances the preparation of the papers involved is the business being carried on or whether this really is ancillary to and an essential part of another business. The simplicity and complexity of the forms, the nature and customs of the main business involved, the convenience to the public, and whether or not separate charges are made, all have a bearing upon the determination of this question.

247 S.W.2d at 862. In reaching its decision, the Court in Hulse expressly recognized the need to balance the protection of the public against a desire to avoid unnecessary inconvenience and expense.

In holding that a real estate broker could properly complete standardized agreements, the Court was strongly influenced by two factors. First, the practice involved the completion of standardized forms:

[O]ften they are simple enough so that such a form will suffice and the parties will wish to avoid further delay or expense by using them. So much real estate business is done in this way, without harmful results, that we do not think the public interest requires it to be changed.

Id., 247 S.W.2d at 861.

Second, the Court noted the nature of the broker's role in a real estate transaction. Although a broker earns a commission when a ready, willing and able purchaser is found to take the property on the seller's terms, as a practical matter the broker needs to get an agreement in writing and to close the sale as promptly as possible to be paid. As such, a broker is "personally concerned in the transaction" and the broker's function is "commercial in character and not merely advisory." Id., 247 S.W.2d at 860-1.

Thus, the Hulse Court rested its decision upon two grounds. First, that the transactions involved were "simple enough so that such a [standardized] form will suffice," and second, that the broker had sufficient identity of interest with the seller he represented to safeguard the proper completion of the transaction. Id., 247 S.W.2d at 861.

The situation presented here regarding escrow companies, however, does not fall within the Hulse exception. While the relatively simple nature of the task of filling in form documents remains unchanged, and while the completion of these documents may be "incidental" to the closing process, ⁹ the escrow company...