L. Ross Merrow is an attorney in Westborough, and concentrates on commercial real estate and zoning. He has been a member of the Massachusetts Conveyancers Association since 1961 and was appointed a Land Court Examiner in 1963. He is also a member of The Abstract Club of Boston.
The recent case entitled Private Lending and Purchasing, Inc. v. First American Title Insurance Company, 54 Mass. App. Ct. 532 (2002), appearing in Lawyers Weekly on April 29, 2002, in which the Appeals Court held in part that; "Absent agreement to the contrary, First American had no duty to conduct a title search, provide a preliminary or final title report or explain the legal effect of liens or encumbrances from coverage," prompts this article. This case involved a "dragnet" clause.
Between 1960 and 1970, I was a title attorney and title examiner for a major title company doing business in the Worcester District Registry of Deeds on a full-time basis. During that period I examined or reviewed over 100,000 titles without a claim. For five years, between 1978 and 1982, I was chief underwriting and claims counsel for the six New England states for a major title insurer with offices in Boston and underwrote many thousands of policies without a claim.
As a real estate lawyer for over 30 years with considerable experience in conveyancing, zoning and environmental matters, I am concerned about the recent trend of title insurers in Massachusetts having their titles done by their own examiners, rather than by independent attorney agents. Independent title attorney agents have been pressured to reduce their legal fees on closings and are forced to rely on a portion of the title insurance premium to survive financially. Obviously, title insurers do not have to split the premium with the agent since they have hired their own title examiners. I recently received a copy of an "announcement" from an affiliate of one of these title insurers, which states, "Guaranteed 48 Hour Full Residential Title Reports". This service competes directly with independent title attorney agents. While I was with the major title insurer from 1978 to 1982, our agents were our best customers, and we would not compete with them. If this trend of the title insurers hiring their own title examiners continues, as I anticipate, then the involvement of title attorneys in residential real estate closings will be minimal.
To counteract this disturbing trend, I recommend to all attorneys, who are agents for title insurers, that you consider only title insurers, including CATIC, that require a full 50-year search from an independent attorney agent, to protect your clients and your real estate practice. Title insurance is fine when supplemented by a full 50-year search by a competent title examiner. The 50-year search also conforms to MCA Title Standard No. 1 and G.L. c. 93, ß 70.
In addition, since all six New England states and many other states have the same ALTA policy as Massachusetts, the endorsement that I propose below would also work in ALTA states.
In other states, title insurers do escrow closings with no real estate attorneys involved. The fact that we now have title insurers in Massachusetts having their titles done by their own title examiners indicates a continuation of this trend.
I recommend to my clients that they obtain a full 50-year search by a competent independent attorney agent, even if there is a title insurance policy involved. There are several exclusions from coverage in the policies, which are important both to the owner and the lender. The policies are intended to exclude environmental regulations, health codes, zoning and subdivision regulations, which can affect one's right to use or occupy the land or to locate or add improvements on the land. Massachusetts has high quality conveyancing practices, which are preserved by an active Conveyancing Bar and the MCA Title Standards. Since real estate conveyancing practices are being adversely affected by these current trends, which also adversely affect the interests of consumers, I would hope that members of the MBA, MCA, the local bar associations, consumers and lenders would support this point of view.
I have a proposed solution for title insurers, for attorney agents, for consumers and for lenders that would solve the problem of the Private Lending case. If title insurers would issue an endorsement to their policies stating that the policy is based on a 50-year search by a competent examiner, this would provide confidence in the title insurance policy for the consumer and lender. There would also be advantages to title insurers of this proposed endorsement since if the insurer asks the title attorney to do a one-owner or two-owner search from a prior policy that had this proposed endorsement, it would provide assurance to the owner-consumer, the lender, the title insurer and the title attorney that the back title had been properly examined by a competent examiner for a period of at least 50 years in accordance with MCA Title Standard No. 1 and G.L. c. 93, ß 70. Even if this proposed endorsement is not acceptable, I still recommend a full 50-year search to comply with MCA Title Standard No. 1 and an Attorney's Title Certification under G.L. c. 93, ß 70 to protect the consumer and the lender. I once successfully defended a frivolous title malpractice claim against other title attorneys and can assure you that this Title Standard and G.L. c. 93, ß 70 are important matters of defense.
New threat to title attorneys in Massachusetts
In my research for this article, I discovered an excellent article in the Aug. 12, 2002, issue of Banker and Tradesman entitled, "Group Set to Challenge Closing Attorney Rules," which should be read. According to this article, a Pennsylvania-based group, called TAVMA (The Title/Appraisal Vendor Management Association) that represents title insurance and appraisal companies, is considering introducing legislation in Massachusetts to remove prohibitions against non-lawyers conducting residential closings. Delaware, North Carolina, South Carolina, Connecticut and Georgia also prohibit non-lawyers from performing real estate closings. TAVMA leaders have met with the Federal Trade Commission officials to complain about this practice in Massachusetts and these five other states.
The MCA and other bar associations won a lawsuit against Colonial Title and Escrow of Foxboro. (Suffolk Superior Court, Civil Docket #SUCV 1996-02746-B) According to this lawsuit, Colonial had allowed non-lawyer staff to assist in residential real estate transactions. Suffolk Superior Court Judge Jane Haggerty, in an excellent decision, decided last June, after five years of litigation, that Colonial's dual roles of title insurance issuing agent and closing agent constituted an "unlawful practice of law" in the process of issuing policies for title insurance companies. This decision correctly points out that where unlicensed persons conduct closings, there is a lack of accountability and potential conflict of interest in realizing their fees only if the deal closes. The unlicensed person has no legal obligation to represent only the purchaser at the closing or give advice concerning conveyancing encumbrances or other matters affecting locus. A permanent injunction was issued by the court in this case. In spite of the Colonial Title case, it is clear that the attack on real estate title attorneys in Massachusetts is increasing. I also recommend that attorneys should contact the MBA, MCA, their local bar associations and legislators to make suggestions as to how to respond to these threats to the conveyancing bar and consumers in Massachusetts.
If TAVMA is successful in its effort to remove attorneys from residential closings, I predict that the biggest losers will be the consumers. The Private Lending case, which took over four years to litigate, is a good example of how long it takes to resolve title claims. Those attorneys who elect to take on a plaintiff's case under a title insurance policy against an insurer should be prepared for a lengthy and expensive lawsuit and should obtain a substantial retainer from the owner or lender. If they are unable to pay this retainer, there is no legal remedy under the policy for the owner or lender. If the title insurer decides to assume the risk of no title examination authorized by the Private Lending case, and the owner or lender cannot afford a large retainer to hire an attorney to pursue the claim against a title insurer who elects to deny the claim, then the owner or lender is left without a legal remedy under the policy.
As an example of what risk a title insurer can take if it wishes, while I was chief counsel at the title insurer, I insured a building with tidelands problems on Atlantic Avenue for a $300,000 risk premium with reinsurance of $100 million, which every other title insurer and Lloyds of London refused to insure.
For most first-time homebuyers, the purchase of a home is one of the largest investments that they will ever make. When these purchasers buy a home, which involves not only title matters, but also zoning, subdivision and environmental matters such as Title 5, it makes good economic sense for the purchasers to hire an attorney to advise the purchasers at the closing. The zoning, subdivision and environmental matters are excluded from coverage in the title insurance policy.
To obtain a copy of the TAVMA release of July 25, 2002, and the release from The Charlotte Observer posted July 23, 2002, entitled, "Lawyers Fight for Real Estate Niche", you can visit their Web site at www.tavma.com. According to the TAVMA release, "Federal regulators estimate that attorney closings cost consumers as much as $400 more than traditional non-attorney closings". According to The Charlotte Observer article, "The FTC has forced other states to change rules requiring lawyers at closing conferences, and consumers in those states haven't suffered, said Ted Cruz, director of the FTC's office of policy planning." In my view, the FTC should be concerned about the rights of consumers under the TAVMA proposal.
I recommend to all attorneys, who are concerned about the increase of the unauthorized practice of law in residential closings, that they contact the leaders of the MBA, MCA, their local bar associations and their legislators as to how to respond to these latest threats to the Conveyancing Bar of Massachusetts.
Even if you do not do titles or loan closings, the issue of the unauthorized practice of law affects all areas of law practice. As Joshua Chamberlain said at the battle of Little Round Top at Gettysburg, the bar should "stand firm."