Ethics Advisory Opinion 05-16
April 13, 2005
RULES 1.1, 1.2, 1.4, 5.3 and 5.5
Date: September 16, 2005
Buyer and seller wish to conduct a real estate closing "by mail."
Under State v. Buyers Services, In re Lester, In re Harrell and Doe v. Condon, etc., does the practice of conducting a real estate closing by mail constitute misconduct on the part of the attorney? Would it make a difference if the attorney was available by phone to answer questions?
Summary of Opinion:
An attorney may conduct a real estate closing by mail so long as it is done in a way that: (1) ensures that the attorney is providing competent representation to the client; (2) all aspects of the closing remain under the supervision of an attorney; and (3) the attorney complies with the duty to communicate stated in Rule 1.4, so as to maintain the attorney-client relationship and be in a position to explain and answer any questions about the documents sent to the client for signature. To meet this test, clients must have reasonable means to be in contact with the attorney whether it be by telephone, facsimile, or electronic transmission.
In the Buyers Service case, the South Carolina Supreme Court made it clear “that real estate and mortgage loan closings should be conducted only under the supervision of attorneys, who have the ability to furnish their clients legal advice should the need arise….” State of South Carolina v. Buyers Service Co., Inc., 292 S.C. 426, 357 S.E.2d 15 (1987). In the Lester case, the South Carolina Supreme Court stated that a “licensed attorney should have been physically present to conduct the actual real estate transactions and closings.” In the Matter of Lester, 353 S.C. 246, 578 S.E.2d 7 (2003). In the Harrell case, the Court reiterated its position in the Lester case requiring that an attorney’s supervision must ensure that the conduct of the person being supervised is compatible with the professional obligation of the attorney. In the Matter of Harrell, 357 S.C. ____ (Op. No. 26016, 2005). Finally, in Doe v. Condon, the Court noted that the expert legal knowledge and skill of an attorney is needed in each and every real estate closing. Doe v. Condon, 351 S.C. 158, 568 S.E.2d 356 (2002). Taken as a whole, the key to properly conducting a real estate or mortgage loan closing by mail is that the attorney must provide the same level of competent legal representation and supervision as he would at any closing. The attorney’s obligations under the Rules of Professional Conduct, Rule 1.1 (Competence), Rule 1.2 (Scope of Representation), Rule 5.3 (Responsibilities Regarding Non-lawyer Assistants), and Rule 5.5 (Unauthorized Practice of Law) remain the same with a closing “by mail.” If a client is not physically present at the closing, the attorney would be required to take whatever additional steps are necessary to ensure that the client is being adequately represented.
In conducting a closing by mail, the issue of an attorney’s presence comes into question. In Lester, the Court’s concern was with the growing tendency of attorneys to allow support staff to perform functions which should be performed by attorneys. This concern is equally applicable to closings by mail. As in any closing, the documents involved in a closing by mail must still be reviewed by the attorney. Whether the closing is to be conducted with the use of a Power of Attorney or by sending the documents to the client for signature and return, the attorney still has a duty under Rule 1.1 to provide competent representation. The attorney must still make sure that the client understands the documents that the client is signing or that will be signed on the client’s behalf. If a non-lawyer is involved in assisting the client with the closing by mail (such as in the preparation of an instruction letter, etc.) the attorney still has a duty under Rule 5.3 to supervise all aspects of the transaction and retain full responsibility for all work.
There is no legal requirement that a client attend the closing. The fundamental difference between a routine closing and a closing by mail is that it is (and must be) the client’s decision not to attend the closing. Given today’s technological advances in communications and funds transfer, to require a client living in one part of the country to travel to another part of the country to attend a closing against the client’s own wishes is both unnecessary and punitive. Indeed, Rule 1.2 states that “A lawyer shall abide by a client’s decision concerning the objectives of representation.…” In the closing where the client is physically present, the attorney’s presence provides the best means by which the attorney can monitor all aspects of the case. In a closing “by mail,” the facts of the Lester case do not fit. Still, Rule 1.2(a) necessitates that the attorney assume responsibility for technical and legal issues but protects the right of a client to consult with the attorney. A client cannot consult with his attorney if no reasonable method to contact the attorney exists. Thus, in any closing by mail, an attorney must comply with the duty to communicate stated in Rule 1.4, so as to maintain the attorney-client relationship and be in a position to explain and answer any questions about the documents sent to the client for signature.
With regard to closings by mail through the use of a Power of Attorney, in Ethics Advisory Opinion No. 88-01, we stated “There is no ethical rule which prohibits a client from executing a limited power of attorney to avoid the inconvenience of attending a closing. This is common practice in real estate closings.…” In Ethics Advisory Opinion 91-30, we recognized that an attorney may use a Power of Attorney to sign all necessary closing documents, but, in so doing, we noted that attorney still had a duty to adequately represent his client.
The degree of legal advice provided by the attorney depends of the facts and circumstances of each closing. For example, if Client is a sophisticated investor, the need for Lawyer to explain the closing documents is not as great as it would be with a first-time home buyer.
The prudent attorney will conduct closings by mail in such a fashion that the client is fully informed and properly advised, that the client has a reasonable means to consult with the attorney, and that all personnel assisting the attorney are properly supervised. Simply put, while the mechanics of a closing may change for a closing by mail, the duties and ethical obligations of the attorney do not.
Typically, a Limited Power of Attorney is sent to a client who, because of distance or as a matter of convenience, does not wish to attend the closing. The client executes the Power of Attorney and returns it to his attorney. The attorney then conducts the closing without the client being physically present.
Typically, the closing documents are mailed to the client with instructions to review and sign the documents. A standard transmittal letter usually invites the client to call the attorney if the client has any questions. The client then mails the documents back to the attorney who proceeds to complete the transaction. In recent years, the growth of the size of loan packages and the relatively short time between when the package is provided by the lender and the date of closing has greatly diminished this kind of closing by mail.