THE VIRGINIAN-PILOT Copyright (c) 1994, Landmark Communications, Inc. DATE: Saturday, December 17, 1994 TAG: 9412150309 SECTION: REAL ESTATE WEEKLY PAGE: 04 EDITION: FINAL TYPE: Cover Story SOURCE: BY MARY ELLEN MILES, SPECIAL TO REAL ESTATE WEEKLY LENGTH: Long : 128 lines
Ladies and gentlemen of the home buying public. Attorney Jerry Douglas Jr. and other distinguised members of the bar will now sum up their case: You need a lawyer when you are investing in real estate.
Within the last year or so, the lawyers have noticed, more and more home buyers have engaged the services of escrow or title companies, or closing services.
With this trend, many lawyers specializing in real estate have become concerned that these firms are doing work in housing transactions traditionally reserved for the legal profession.
Douglas, a Virginia Beach real estate attorney, has embarked on a campaign to ``educate the public'' that although such companies may offer what look like similar services for half the cost, the buyer should be aware of what they cannot offer - a contract interpretation, for example.
A closing agent is typically a third party hired to handle paperwork, receive documents and make sure funds are dispursed according to the lenders' instructions.
Proponents of the process say by using the non-legal services, both buyer and seller save money and time since title insurance companies search the title anyway.
Douglas, also an adjunct professor of real estate law at Tidewater Community College, points out that it's not that an escrow company does a poor job, but that an attorney offers a whole lot more for as little as $50 more in fees.
``Real estate is a whole different language,'' Douglas says, ``and a real estate closing is heavily entwined with the practice of law.''
Attorneys can interpret what a contract says, but by law, an escrow company cannot. Therefore, they can close loans, say ``sign here, here and here,'' but if you want to understand what you're signing, ``you're out in the cold,'' he says.
The title companies can prepare a certificate of satisfaction, which releases a mortgage lien, but they are not allowed to tell you what it means. They also cannot draw up any legal documents, prepare a deed or deed of trust.
It requires no certification to become an escrow agent.
Douglas had a brochure printed, titled: ``Which Should You Call: A Lawyer or an Escrow Company?'' In it, he poses the following situationsf:
You're writing an offer and need to know how to phrase one of the conditions.
You need an interpretation of a sentence in a contract.
You have a walk-through dispute.
You have a disagreement over an obligation in a contract.
``You can't ask an escrow company,'' Douglas says. ``The law prohibits them from giving legal opinions or advice.''
And, he cautions, if you need advice in the evening or on a weekend, you could reach your attorney, but probably not your escrow company.
According to Douglas, some escrow companies hire their own attorney and give the impression that their services are equal to a real estate attorney's.
However, he says, ``the unauthorized practice of law statute says that a lawyer who acts as an employee of the escrow company can be convicted under the statute for doing what a lawyer would normally be allowed to do.''
Since a lawyer working for an escrow company would be working for his client, his loyalty would not to the client. Therefore, advice from that lawyer would not necessarily be in the client's best interest, Douglas maintains.
Conversely, ``a lawyer is responsible by law to do everything to protect a client, even if it works to the detriment of that lawyer,'' says Douglas.
Another real estate attorney, Jeff Flax, also decided it was time for action.
He called several other attorneys and organized a ``group of attorneys who are aware of the unauthorized practice of law and feel it is their responsibility to do something.''
The group holds monthly breakfast-discussion meetings. In a memo, the group mentions some of the same information given above, but also points out that lawyers are regulated, while escrow companies are not.
Lawyers have strict ethical guidelines and are subject to audit.
Escrow companies are allowed to earn interest on their escrow accounts, so the longer the money stays in an account, the more profit they make off a client.
Lawyers are not allowed to earn interest; therefore it does not benefit them to hold a client's money.
Another advantage offered by the ad hoc lawyers' group is that attorneys offer a safety net since most have malpractice coverage.
What happens at a closing if a buyer or seller has a question that should be answered by a lawyer, and one is not present?
Douglas offers the scenario that since no one would suggest bringing in a lawyer this late in the game, an opinion would be given by the individual possessing the most forceful personality.
``So, the strong prey on the weak,'' he says. `` The stronger personality would win, not necessarily the law.''
Or, if a massive conflict should arise at closing, without a lawyer present, both the buyer and seller may then hire attorneys, paying them much more at that point than they could have initially hired them for and been protected.
Until a closing is completed, it's not possible to know how much the process will cost. ``Attorneys are there to make sure nothing goes wrong,'' Douglas says. If nothing does go wrong and a client pays a little extra for an attorney, he's paid for peace of mind.
Another Virginia Beach real estate attorney, Gerald Kerr, has come up with a list of ``25 Reasons Why the Biggest Investment of your Life Deserves the Services of a Real Estate Lawyer.''
In the document, he explains exactly what types of legal advice or services can be rendered, including which documents can be prepared by a lawyer. None of these services could be given to a consumer by an escrow company.
A real estate attorney is a valuable resource not only for the consumer, but for real estate agents as well, according to one agent.
A lawyer makes an agent's job easier, by researching information and contract loopholes, helping to correctly phrase wording in documents, and giving them legal advice, thus saving agents time and effort.
``They take a lot of responsibility off the agent,'' says Alice Watson, broker at Century 21 Accord. She has found that by offering legal guidance, which escrow companies cannot give, lawyers are ``willing to go that extra mile.''
``If it weren't for the attorneys, probably two-thirds of all problem closings wouldn't close,'' she states. ILLUSTRATION: [Cover]
[Color photo by] GARY C. KNAPP
DO WE NEED LAWYERS?
Photo by JIM WALKER
Jerry Douglas Jr., a Virginia Beach real estate lawyer, says if
something goes wrong with the deal, you need your attorney.