May 16, 2013 By Greg Land Staff Writer – Daily Report Online

‘Witness-only’ closings break unauthorized practice rules, suits claim; defenders say their clients comply with the law

Real estate closing attorneys around the state are battling companies that hire Georgia lawyers to preside over closings just long enough to see that the documents are signed and witnessed.

The fight over these practices has grown from legislative debates into two suits in federal court. The cases, on behalf of a potential class of 3,000 property buyers, take on two practices that have alarmed closing attorneys and the State Bar of Georgia: so-called “witness-only closings,” during which a licensed attorney serves only to present closing documents to the borrower for signature; and corresponding claims that such closings constitute the unauthorized practice of law by national closing companies.

Attorneys for the defendant companies and lawyers argue that the suits will fail because, among other problems, there is no private right of action a plaintiff can bring against someone engaging in the unauthorized practice of law.

However the suits fare in court, the controversy has momentum to stay.

“What you’re seeing is the culmination of a big grass-roots effort to get witness-only and unauthorized practice of law closings stopped in Georgia,” said William Phalen, a real estate attorney and president of the Georgia Real Estate Closing Attorneys Association. The organization is not a party to the litigation, but its website prominently hosts a “Plan of Action” crafted by the members of the bar’s Unauthorized Practice of Law Committee to combat such closings. It also supports a proposed bar advisory opinion stating that an attorney “may not ethically conduct a ‘witness only’ closing.”

Phalen said that the practice exploded after the housing bubble burst, as large national banks took over collapsed smaller banks’ portfolios, often stuffed with residential mortgages.

“These were national operations, and they wanted a one-stop shop to get these things closed and off the books,” Phalen said. “So you had these companies that Bank of America and Wells Fargo could call to do all the paperwork for closings anywhere in the country.”

Phalen said he estimates 20,000 witness-only transactions occur a year in Georgia. “It’s gotten to be big business.”

In 2003, the Georgia Supreme Court unanimously affirmed UPL Advisory Opinion No. 2003-2, which declared the preparation and execution of a deed by anyone other than a licensed attorney to be the unauthorized practice of law.

In 2012, state lawmakers passed an amendment to O.C.G.A. § 44-14-13, Georgia’s Good Funds Law, making it a misdemeanor for anyone other than an attorney or lender to collect and disburse funds in finalizing a residential real estate settlement.

Those issues are raised in the suits filed by Bloom Sugarman Everett attorneys Simon Bloom, Stephanie Everett and Meredith Ragains, along with R. Clay Milling of Henry Spiegel Milling and outside attorneys from New Orleans, Philadelphia and Alexandria, Va.. Originally filed in Fulton County Superior Court, the cases were recently removed to Atlanta’s federal court.

“The issue really starts with Georgia law requiring real estate closings be conducted by Georgia lawyers,” said Bloom. “There’s a lot more to that than just showing up and presiding over the signing,” he said. Those duties include researching and verifying the title, ensuring that the deed is unencumbered and properly describes the property, and depositing and disbursing settlement from an attorney’s trust account, among many others.

“We know for a fact that, with these defendants at least, Georgia lawyers are not performing these functions,” Bloom said. “We understand that some of these lawyers, who are really serving as nothing more than witnesses, do five or six or more of these things a day, traveling from Starbucks to Burger King to somebody’s living room long enough to have the documents signed.”

An analysis of the issue by Phalen says that Georgia attorneys traditionally take control of the real estate transactions, but in a witness-only deal, “a non-attorney entity controls the transaction with little or no meaningful involvement by a member of the Bar.”

The first suit, filed March 29 on behalf of plaintiff Patricia Clements, names as defendants LSI, a division of Florida-based Lender Processing Services. It is a “vendor management company,” or VMC, described as “independent, third-party, title insurance company-affiliated or lender-affiliated providers of real estate closing services.”The VMCs are regional or national operations that employ “large networks of third-party vendors” including “title examiners, document preparation companies, signing services, notaries and settlement agents whose role is limited to attending the witness-only Ceremonial Signing” finalizing the transaction, the suits says.

That suit also names Atlanta attorney William Fair III and his practice, along with 15 “John Doe” defendants described as “LSI Scheduling Firms [that] are other unknown law firms engaged by LSI to perform scheduling and witness closings” in Georgia.

The second suit, filed on behalf of Richard Busbee on April 9, names Michigan-based Title Source Inc.; Norcross firm Cook & James and its principals, A. Kara Cook and Heather James; Michelle Ruff, described as Title Source’s in-house counsel; and five John Doe defendants, again described as law firms hired to schedule and witness closings.

Both suits assert that the companies and the lawyers they hire engaged in the unauthorized practice of law by allowing all of the pre-closing work to be done by outside agencies and then having the lawyers sign off on the settlement. Each suits claims a potential class of more than 3,000 homebuyers per year are affected by such closings.

The suits also allege violations of the federal Real Estate Settlement Procedures Act, or RESPA, which relates to federally guaranteed loans, and Georgia law barring fee-splitting. The suits say that the borrowers were charged “settlement” or “closing” fees of hundreds of dollars each that were divided among the companies and attorneys.

“[The companies] provided no actual services related to the closing of the loan and, as a result, its portion of the Settlement or Closing Fee is unearned,” says each complaint. “Since the conduct of a closing or settlement in Georgia by anyone other than a Georgia attorney is illegal under Georgia law, [the companies’] provision of these services cannot constitute the performance of ‘actual services,’” and they are “not entitled to take any split of the fee paid for the rendering of such services.”

The companies “contravened RESPA by hiring (and sharing a fee with) a lawyer who posed as a closing attorney even though said attorney provided no legal services related to the residential real estate closings as required by law.”

The companies are accused of violating Georgia’s Good Funds Law because they are not members of the Georgia bar and are not orlenders “regularly engaged in making loans secured by mortgages or deeds to secure debt on real estate.”

Both suits also claim unjust enrichment and violations of Georgia racketeering law because the defendants “knowingly made deliberate misstatements, misrepresentations or omissions during the mortgage lending process” constituting “numerous acts of racketeering activity over a number of years affecting all class members.”

Carlock Copeland & Stair partner Johannes Kingma, who is representing Fair and his practice, said that his client had complied with all applicable law and expected the case to be dismissed.

“Bill Fair has been in practice for awhile, and he denies—and we deny—any wrongdoing,” said Kingma, who is working the case with partner John Rogers. “We are going to be filing a motion to dismiss, and we suspect that it will be successful.”

“The thrust of this litigation seems to be the unauthorized practice of law,” Kingma said, “and there is not a cause for private action for the unauthorized practice of law in Georgia.”

Kingma pointed to an effort to create just such a right for an individual suit over the unauthorized practice of law during the 20102 General Assembly. Although Senate Bill 365 ultimately passed, it was gutted and used as a vehicle for unrelated legislation by the time lawmakers finished with it.

Kingma added that in the suit naming his client, the allegations of fee-splitting or that was overcharged were inaccurate.

“Our understanding is that this was a refinance and that she paid nothing at closing and got charged zero interest,” he said.

Similar arguments were raised by Baker, Donelson, Bearman, Caldwell & Berkowitz partner L. Clint Crosby, whose firm represents the defendants in the Title Source case.

“The allegations are very broad and are centered on the unauthorized practice of law claims,” he said. “There is no private right of action for that in Georgia, and this appears to be an attempt to take a claim for that and couch it in all these different claims.”

“We’re in compliance with all statutory and regulatory requirements,” said Crosby, “and we think once a federal court takes a look at it, we’ll be successful in defeating the claims or getting it dismissed on summary judgment.”

Alston & Bird partner Teresa Bonder, who represents LSI, did not respond to requests for comment.

Earlier this year, the State Bar of Georgia’s Executive Committee assigned a task force to examine the problem of witness-only closings and come up with recommendations to address an increasing number of concerns being raised by the bar’s real estate practitioners.

“They kept saying ‘this is a growing problem,’ and it got our attention for many reasons,” Georgia Bar President Robin Frazer Clark said. “Of course, we’re concerned about protecting the public, and there’s also the concern that these witness-only closings mean those funds aren’t going through lawyers’ IOLTA accounts.”

The out-of-state and Internet companies handling such transactions, she said, are “running millions of dollars through their accounts that are not going through Georgia escrow accounts. That’s money that should trickle down to Georgia Legal Services and Atlanta Legal Aid.”

The task force recommended a 12-point “plan of action” authored by Patrise Perkins Hooker, a member of the bar’s Real Property section and current general counsel to the Atlanta BeltLine Inc.

In addition to pushing for approval of proposed Formal Advisory Opinion No. 10-R2, which specifically states that no Georgia lawyer may ethically conduct a witness-only closing, the recommendations urge the bar to contact solicitors and prosecutors to seek criminal prosecutions of UPL and Good Fund Law violations, along with racketeering charges if applicable.

The recommendations also say the bar’s UPL Committee should consider filing suits against third-party entities engaging in or abetting the unlicensed practice of law.

“Borrowers are being hurt because these lenders have closed tens of thousands of loans,” said Perkins-Hooker. “Just one of them testified that they did 9,000 a year.”

She said the deals suffered from unexamined titles, undiscovered liens, loan rates being incorrectly reported and locked in, and attorneys unable to answer even basic questions about the closing or law.

“Real estate lawyers have been pushing this for years, because we’re the ones cleaning up the mess,” she said.

Perkins-Hooker said she ran into the problem first-hand when her mother-in-law was closing on a house.

A man showed up with seven closing packages he was handling that day, she said. “No notary, no witness. I told him, ‘You’re violating the law,’ and he said, ‘I’m a lawyer, you don’t know what you’re talking about.’”

“He was in gross violation of the law,” she said, adding that the closing went through only because she served as her mother-in-law’s attorney.

The cases are Clements v. LSI, No. 1:13-cv-01468, and Busbee v. Title Source Inc., No. 1:13-cv-01596.