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In re Opinion No. 26 of Committee on Unauthorized Practice of Law

March 13, 1995

IN RE OPINION NO. 26 OF THE COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW


Remanded June 4, 1993. On review of an opinion of the Supreme Court Committee on the Unauthorized Practice of Law.

Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, Garibaldi, and Stein join in this opinion. Justice Coleman did not participate.

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

IN RE OPINION NO. 26 OF THE COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW

(A-73/74-94)

Argued January 5, 1993 -- Remanded June 4, 1993

Reargued October 11, 1994 - Decided March 13, 1995

PER CURIAM

Opinion No. 26 of the Committee on the Unauthorized Practice of Law (Committee) was issued in response to an inquiry from the State Bar Association whether the residential real estate closing practice in South Jersey, which consists largely of closings in which neither the buyer nor the seller is represented by counsel, constitutes the unauthorized practice of law. In its Opinion, the Committee concluded that the ordering of a title search by the broker, the preparation of conveyancing and other documents by title officers, their clearing of title questions, and the activities of both brokers and title officers at the closing, where neither the buyer nor the seller is represented by counsel, were activities that constitute the unauthorized practice of law.

The Committee later clarified its Opinion, explaining that it did not intend to prohibit a buyer or a seller from proceeding without counsel, but that the specified activities by the non-lawyers in the South Jersey practice indeed were the unauthorized practice of law. Opinion No. 26 was interpreted to mean that the right of a seller or buyer to proceed without counsel was a theoretical one in view of the fact that those who helped in the transaction were able to do so only by engaging in the unauthorized practice of law.

Because of the significance of the issues, the Supreme Court stayed the effect of Opinion No. 26 pending its review. Following briefing and oral argument, the Court remanded the matter to retired Superior Court Judge Edward S. Miller, sitting as a Special Master, to develop a more complete record. After sixteen days of hearings, Judge Miller issued a report. He strongly favored a requirement that buyers and sellers be represented by an attorney; nonetheless, in light of the circumstances and prior case law on related matters, Judge Miller recommended that the Court allow the South Jersey practice to continue subject to various conditions.

In support of his recommendations, Judge Miller found no proof of actual damage arising from the South Jersey practice. The Judge did find that many of the activities undertaken by brokers and title officers, taken in isolation, involved the practice of law, but that if informed of the risks and of the conflicting interests of the brokers and title officers, sellers and buyers should have the right to choose not to be represented by counsel. Judge Miller recommended several conditions concerning the drafting of relevant documents and the rendering of legal advice.

HELD: The practice of conducting residential real estate closings or settlements without the presence of attorneys to represent the seller and the buyer shall not constitute the unauthorized practice of law so long as the broker conforms to specific conditions -- the broker must notify both buyer and seller of the conflicting interests of brokers and title companies in these matters and of the general risk involved in not being represented by an attorney. If the conditions are not met, the broker and the title officer, if the latter is aware of the broker's failure to meet the conditions, are engaged in the unauthorized practice of law. Attorneys with that knowledge who participate in the transaction are guilty of unethical conduct.

1. The Court described the formalities of a residential real estate transaction and addressed the basic differences between the practice of non-attorney representation in South Jersey and attorney-represented closings elsewhere. The Court found that a South Jersey closing is generally less expensive but noted the risks of non-attorney representation at each phase of the real estate transaction and the potential conflicts of interest of brokers and title officers in such matters. (pp. 14-24)

2. The important aspects of a real estate transaction involve the practice of law. The prohibition against the unauthorized practice of law serves to protect the public against unskilled and unlearned advice in legal matters. That prohibition is not, however, automatic. The most important question in determining whether certain actions constitute the unauthorized practice of law is whether the public interest is disserved by permitting such conduct. That determination must be based on practical considerations and common sense, using a complete and detailed record that includes the extent, length of existence, effect, and result of the performance of similar acts by non-attorneys and a showing of the public need for such service. (pp. 24-35)

3. The theme of prior case law is clear. It is the public interest that determines the outcome of any prohibition and that in serving that public interest, it may be necessary to impose conditions to insure that the public is served. Today's holding is consistent with previous treatment of this issue. (pp. 35-48)

4. The record clearly shows that the South Jersey practice has been conducted without any demonstrable harm to sellers or buyers, that it saves money, and that those who participate do so of their own choosing, presumably with some knowledge of the risks involved. The record also fails to demonstrate that brokers are discouraging the parties from retaining counsel or that the conflict of interest that pervades the practice has caused material damage to participating sellers and buyers. The Court believes that the parties should retain counsel. Given the history and experience of the South Jersey practice, however, the Court concludes that the public interest will not be compromised by allowing the practice to continue so long as the parties are adequately informed of the conflicting interests of brokers and title officers and of the risks involved in proceeding without a lawyer. (pp. 48-55)

5. The matter is referred to the Civil Practice Committee for a recommendation in respect of the practical means of achieving the notice requirement the Court imposes. In the meantime, the Court adopts an interim notice requirement (see Appendix A) with which the broker must comply by attaching it to the proposed contract of sale as its cover page. The notice may be appropriately revised if the broker represents the buyer or is a dual agent. Brokers shall inform the buyer and seller that they must read this written notice before executing the contract. At the beginning of the closing or settlement, the title officer in charge shall ask both the buyer and the seller whether, how, and when they received notice and shall keep a record of that inquiry and the responses. A broker who fails to comply with these conditions, will have engaged in the unauthorized practice of law. In addition, others who participate in the transaction, excluding the buyer and seller, who know that the required notice has not been given, will also be engaged in the unauthorized practice of law. An attorney continuing to participate in the transaction will be subject to discipline for unethical conduct. (pp. 55-57)

6. Brokers may order title searches and abstracts. An attorney retained by the broker or title company may draft conveyance documents only on written request of the party on whose behalf the document is to be prepared. The title company may participate in clearing up minor objections to title. Further, brokers have a duty to inform the seller or buyer of a situation where independent counsel is needed. The Court also refers several of Judge Miller's other recommendations to the Civil Practice Committee; the issue of certification of real estate attorneys was referred to the Board on Trial Attorney Certification. (pp. 57-61)

7. This decision will not become effective until sixty days from the date of the opinion. It will apply to all real estate contracts subject to this opinion that are thereafter executed and to the transactions based on those contracts. (pp. 61-62)

The decision of the Committee on the Unauthorized Practice of Law, Opinion No. 26, is AFFIRMED IN PART and REVERSED IN PART. Judgment is entered declaring the rights of the participants in New Jersey residential real estate transactions in accordance with this opinion.

CHIEF JUSTICE WILENTZ, and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN join in the Court's opinion. JUSTICE COLEMAN did not participate.

PER CURIAM

We again confront another long-simmering dispute between realtors and attorneys concerning the unauthorized practice of law. See New Jersey State Bar Ass'n v. New Jersey Ass'n of Realtor Bds., 93 N.J. 470, 461 A.2d 1112 (1983). Title companies are also involved. Our resolution of the dispute turns on the identification of the public interest. Since our decision today permits sellers and buyers in real estate transactions involving the sale of a home to proceed without counsel, we find it necessary to state the Court's view of the matter at the outset. The Court strongly believes that both parties should retain counsel for their own protection and that the savings in lawyers fees are not worth the risks involved in proceeding without counsel. All that we decide is that the public interest does not require that the parties be deprived of the right to choose to proceed without a lawyer.

The question before us is whether brokers and title company officers, who guide, control and handle all aspects of residential real estate transactions where neither seller nor buyer is represented by counsel, are engaged in the unauthorized practice of law. That many aspects of such transactions constitute the practice of law we have no doubt, including some of the activities of these brokers and title officers. Our power to prohibit those activities is clear. We have concluded, however, that the public interest does not require such a prohibition. Sellers and buyers, to the extent they are informed of the true interests of the broker and title officer, sometimes in conflict with their own interests, and of the risks of not having their own attorney, should be allowed to proceed without counsel. The South Jersey practice, for it is in that part of the state where sellers and buyers are most often unrepresented by counsel in residential real estate transactions, may continue subject to the conditions set forth in this opinion. By virtue of this decision, those participating in such transactions shall not be deemed guilty of the unauthorized practice of law so long as those conditions are met. Our decision in all respects applies not only to South Jersey, but to the entire state.

Under our Constitution, this Court's power over the practice of law is complete. N.J. Const. art. 6, § 2, P 3. We are given the power to permit the practice of law and to prohibit its unauthorized practice. We have exercised that latter power in numerous cases. In re Application of N.J. Soc'y of Certified Public Accountants, 102 N.J. 231, 507 A.2d 711 (1986); New Jersey State Bar Ass'n v. New Jersey Ass'n of Realtor Bds., 93 N.J. 470, 461 A.2d 1112 (1983); Cape May County Bar Ass'n v. Ludlam, 45 N.J. 121, 211 A.2d 780 (1965); New Jersey State Bar Ass'n v. Northern N.J. Mortgage Assocs., 22 N.J. 184 (1956); In re Baker, 8 N.J. 321, 85 A.2d 505 (1951); Stack v. P.G. Garage, 7 N.J. 118, 80 A.2d 545 (1951).

The question of what constitutes the unauthorized practice of law involves more than an academic analysis of the function of lawyers, more than a determination of what they are uniquely qualified to do. It also involves a determination of whether non-lawyers should be allowed, in the public interest, to engage in activities that may constitute the practice of law. As noted later, the Conclusion in these cases that parties need not retain counsel to perform limited activities that constitute the practice of law and that others may perform them does not imply that the public interest is thereby advanced, but rather that the public interest does not require that those parties be deprived of their right to proceed without counsel. We reach that Conclusion today given the unusual history and experience of the South Jersey practice as developed in the record before us.

We determine the ultimate touchstone -- the public interest -- through the balancing of the factors involved in the case, namely, the risks and benefits to the public of allowing or disallowing such activities. In other words, like all of our powers, this power over the practice of law must be exercised in the public interest; more specifically, it is not a power given to us in order to protect lawyers, but in order to protect the public, in this instance by preserving its right to proceed without counsel.

We believe that parties to the sale of a family home, both seller and buyer, would be better served if each were represented by counsel from the beginning to the end of the transaction, from contract signing through closing. We are persuaded, however, that they should continue to have the right to choose not to be represented. They should, of course, be informed of the risks. The record fails to demonstrate that the public interest has been disserved by the South Jersey practice over the many years it has been in existence. While the risks of non-representation are many and serious, the record contains little proof of actual damage to either buyer or seller. Moreover, the record does not contain proof that, in the aggregate, the damage that has occurred in South Jersey exceeds that experienced elsewhere. In this case, the absence of proof is particularly impressive, for the dispute between the realtors and the bar is of long duration, with the parties and their counsel singularly able and highly motivated to supply such proof as may exist. The South Jersey practice also appears to save money. For the record demonstrates what is obvious, that sellers and buyers without counsel save counsel fees. We believe, given this record, that the parties must continue to have the right to decide whether those savings are worth the risks of not having lawyers to advise them in what is almost always the most important transaction they will ever undertake. We realize this Conclusion means that throughout the transaction, sellers and buyers may not have the benefit of their own counsel but will look to brokers and title officers, often with conflicting interests, for practical guidance and advice.

I

Proceedings Below

Opinion No. 26 of the Committee on the Unauthorized Practice of Law, 130 N.J.L.J. 882 (March 16, 1992), was issued in response to an inquiry, one of many, from the New Jersey State Bar Association. The inquiry sought a determination of whether the South Jersey practice constituted the unauthorized practice of law. That practice, described in detail later, concerns the sale of a home generally financed by a purchase money mortgage. The essence of the South Jersey practice is that from the beginning of the transaction to the end, neither seller nor buyer is represented by counsel. Every aspect of the transaction is handled by others, every document drafted by others, including the contract of sale, affidavit of title, bond and mortgage. The Committee on the Unauthorized Practice of Law (the Committee), relying largely on our decisions in New Jersey State Bar Association v. New Jersey Association of Realtor Boards, 93 N.J. 470, 461 A.2d 1112 (1983); Cape May County Bar Association v. Ludlam, 45 N.J. 121, 211 A.2d 780 (1965); New Jersey State Bar Association v. Northern New Jersey Mortgage Associates, 32 N.J. 430, 161 A.2d 257 (1960), and its own prior determination in Opinion No. 11 of the Committee on the Unauthorized Practice of Law, 95 N.J.L.J. 1345 (December 28, 1972), ruled that the ordering of a title search by the broker, the preparation of conveyancing and other documents by title officers, their clearing of title questions, and indeed the activities of both broker and title officers at the closing itself, where neither buyer nor seller was represented by counsel, that all of these activities constituted the unauthorized practice of law. The decision was interpreted widely as prohibiting the South Jersey practice, in effect prohibiting a seller and buyer from proceeding with the sale of a home without counsel.

On July 20, 1992, the Committee issued a notice to the bar and the public, clarifying its opinion. 131 N.J.L.J. 910 (July 20, 1992). The Committee explained that it did not intend to prohibit a seller or a buyer from proceeding in these matters without counsel. But at the same time the Committee adhered to its determination concerning what constituted the unauthorized practice of law in these matters, without in any way changing that determination. The result, it appeared to many, was that the right of seller and buyer to proceed without counsel was theoretical, for those whose help they would inevitably require to go through with the transaction seemed, by virtue of the Committee's opinion, to be able to give such help only by engaging in the unauthorized practice of law. Given the concerns of both potential sellers and buyers, as well as those of brokers and title officers, and given the fact that the South Jersey practice had continued for so long, we stayed the effect of Opinion No. 26 pending review by this Court.

Following briefing and oral argument by those interested in the matter -- the organized bar, brokers, title officers -- we remanded the matter to develop a fuller record, referring it to Judge Edward S. Miller, as Special Master, for that purpose. After sixteen days of hearing, Judge Miller rendered his report to us. While personally strongly favoring a requirement that sellers and buyers be represented by counsel, Judge Miller recommended essentially that we allow the South Jersey practice to continue subject to certain conditions.

The hearing conducted by Judge Miller, leading to his findings and recommendations, is critical to our decision. It was directed not only at determining the extent of the practice of law engaged in by non-lawyers, a circumstance generally known and relatively uncomplicated, but more so at the consequences and implications of the practice. The purpose of the remand was to examine in depth the many factors that would enable this Court to determine whether and to what extent allowing parties to proceed without counsel in such transactions disserved the public interest. That remand was similar to the action taken by this Court in other unauthorized practice of law cases described later, although the depth and detail of both our inquiry and Judge Miller's hearing and report went beyond most such remands. We asked that the scope of the remand include not only all of the factual aspects of the South Jersey practice, but also its impact on buyers and sellers including both costs and risks; the knowledge of the parties of those risks, and of the conflicting interests of brokers and title officers; the frequency of transactions in which neither party is represented by counsel; comparable advantages and disadvantages to consumers in South Jersey transactions as compared to transactions where both are represented by ...


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