February brought on interesting claims of high-tech advances in loan origination and closing. The question for attorneys is whether the advances step on their professional toes. Two first quarter 2020 events trigger these observations:
On February 5, Docutech, which brings you the platforms of eSign and eClose digital technology announced that it would partner with Origence. The Origence lending platform, according to hype on Business Wire, is a “ground-breaking, end-to-end system that combines powerful point-of-sale and loan origination system tools that accelerate a lender’s loan production and reduce process cycle time while significantly reducing costs,” by streamlining workflow for generating, distributing, and signing loan documents.
On February 21, the Phoenix Business Journal reported that First American Financial, which provides title insurance and settlement services to the mortgage industry, has purchased Docutech. So, what is the net result of this consolidation that we’re told will offer better digital mortgage experiences to consumers? Is this rollup intended to make execution and delivering of loan documents streamlined and no more? Otherwise put, is it kosher from the legal industry’s perspective? Courts, prodded by Bar Associations, have been a bit particular in regulating exactly who can engage in law practice. In Arizona, Rule 31 of the Rules of the Supreme Court defines the practice of law as “providing legal advice or services to another by preparing a document in any medium intended to affect or secure legal rights for a specific person or entity.” Aren’t loan documents intended to secure legal rights to both parties to the lending transaction – borrowers and lenders – by defining the rights and obligations of each?
There are exceptions to this definition. Title Companies, for one entity, have long been permitted to prepare certain “closing documents” connected with transactions as to which those companies will be selling a title insurance product. Secondly, per the Arizona Code of Judicial Administration § 7-208, Certified Legal Document Preparers may provide general factual information pertaining to legal rights, procedures, or options available to a person in a legal matter when that person is not represented by an attorney. UPL Advisory Opinion No. UPL 06-02 (April, 2006).
But it remains to be seen if First American Financial has stepped on a landmine. In 1961, the Arizona Supreme Court in State Bar of Arizona v. Arizona Land Title & Trust Co., 90 Ariz. 76, 96, entered an order stating:
It is further ordered, adjudged, and decreed that: the defendant title companies are engaging in unauthorized practice of law when they: (a) prepare by drafting or filling in blanks, deeds or conveyances of any kind, forms of notes, mortgages, satisfactions of mortgages, assignments of mortgages, contracts for sale of real estate, or assignments thereof . . .. (emphasis added)
So, if a borrower goes to a First American branch and signs finished loan documents (that is, with all blanks completed, including the loan amount, dates for each payment due, and so on) tendered by a First American Title employee, has that employee engaged in law practice? Were we in Nebraska, that question has been answered by the state’s Commission on Unauthorized Practice of Law, in its Title Insurance Advisory Opinion 2010-001, ¶5 – with a resounding “yes” in response – a title insurance agent cannot prepare a deed of trust or mortgage, even if it is just to fill in the blanks. That is considered conducting the unauthorized practice of law in Nebraska.
In 1985, the State Legislature repealed the Arizona statute prohibiting the unauthorized practice of law – without, of course, impacting the judge-made law. And in 2000, the Supreme Court indicated: “We are quite aware of the social, technological, and economic changes that have taken place since our decision in Arizona Land Title. In some situations, these changes may require us to reexamine our broad definition of the practice of law.” (In Re: A Former Member of The State Bar of Arizona, Frederick C. Creasy, Jr., Respondent, 2000.) Are we on the cusp of examining anew, in Arizona anyhow, that law practice definition? Is the legal profession overprotective, trying merely to keep its monopoly on billings? Well, what happens when Consumer Clive asks the escrow officer at the signing table what “defeasance” or “due on transfer” means in Clive’s Deed of Trust, and the escrow officer doesn’t know the answer but has a wiring cutoff deadline to get signed documents? Whose ox is being gored has much to say about the rigidity built in to notions of unauthorized practice.
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