Real estate lawyers tell panel that title search is integral to practice
When a lawyer in a real estate transaction provides title insurance, is that an integral part of the practice or a law-related business transaction?
The question was asked, and answered, during an Illinois Supreme Court Rules Committee hearing on Oct. 24 in Chicago.
“The lawyer’s obligation includes providing marketable title,” said Henry L. Shulruff, senior vice president of Attorneys’ Title Guaranty Fund. “It is the practice of law, not a business transaction.”
Shulruff pointed out to committee members that the lawyer does not just sell a title insurance policy. “You must do the work,” he said, which includes reviewing the impact of variables to avoid liability when complicated legal issues arise.
At issue was the proposal from the Supreme Court Committee on Professional Responsibility for amendments to Rule 1.8: Conflict of Interest, and a new Rule 5.7.
If amended, Rule 1.8(a) would require that “A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client” unless the terms are fair and reasonable, fully disclosed, transmitted in writing and confirmed by informed consent.
Committee comment warns of “the possibility of overreaching when the lawyer participates in a business, property or financial transaction with a client…”
Further, “The Rule applies to lawyers engaged in the sale of goods or services related to the practice of law, for example, the sale of title insurance…” and refers to Rule 5.7.
That rule, titled Responsibilities Regarding Law-Related Services, provides that “A lawyer shall be subject to the Rules of Professional Conduct with respect to the provision of law-related services…” in certain circumstances.
Among them are services “by an entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assure that a person obtaining the law-related services knows that the services are not legal services…”
Committee comment suggests “the potential for ethical problems” when a person receiving law-related services does not understand that they may not carry “protections normally afforded as past of the client-lawyer relationship.”
Law-related services cited in commentary include “providing title insurance, financial planning, accounting, trust services, real estate counseling,” and several others.
Shulruff’s responses to the committee were preceded by those of Ralph J. Schumann, president of the Illinois Real Estate Lawyers Association and a member of the ISBA Real Estate Law Section Council.
Schumann urged the rules committee not to distinguish between the practice of law and provision of law-related services such as title insurance.
“It is not a problem for a lawyer to provide title insurance,” he said, adding that it is not a discretionary purchase and there is no risk of widespread abuse.
Schumann called title protection an essential part of a real estate transaction, not a separate transaction.