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                                         95 N.J.L.J. 1345
                                        December 28, 1972


Appointed by the New Jersey Supreme Court


Practice of Title and Abstract Complaints

    Q. Is a title or abstract company guilty of the unlawful practice of law when it issues a title policy or provides an abstract of title and general search affecting premises in New Jersey to a person other than the present owner, a prospective buyer, or an attorney for a party interested in the premises? More specifically, is it the unlawful practice of law for a title or abstract company not only to condone but to encourage, by rebate, the real estate agent involved in a sale to order a title policy or search for the buyer and lender, often before a binding sales agreement has been executed?
    The measuring rod is the public interest. Auerbacher v. Wood, 142 N.J. Eq. 484, 486 (E. & A. 1948); N.J. State Bar Association v. Northern N.J. Mortgage Association, 22 N.J. 184, 195 (1956). Is the public injured by this practice? The answer is to be found by determining whether any skill or knowledge possessed by a lawyer is of value to the public in the ordering of title searches or policies.
    The history of title searches goes back many years while that of title insurance is shorter. The purposes in both is to give assurance to a prospective buyer or lender that the title to the premises is marketable. Title searches cover those items of record which might affect the title, while title insurance adds such other items, not necessarily of record, which might affect the title. Title insurance does not make a title more "marketable" in the legal sense, but does in the economic sense. It is insurance in that it covers unforeseeable risks such as frauds, forgery and human errors. Government and interstate lending agencies generally require title insurance so they can package and make a market for their mortgages in interstate commerce. The whole field of title, whether "marketable" or "insurable," is deeply interwoven with legal questions and problems on which only one trained in and authorized to practice the law can properly advise the buyer.
    To get a title insurance policy does not mean, contrary to popular opinion, that you are necessarily certain that you have or can get a "marketable title" or even an "insurable title." Title companies, after they make the title search, issue a report of title, which almost always contains numerous exceptions, some standard and some special to the particular title. Unless these exceptions are removed in a manner satisfactory to the title company, they will appear in the final policy as exceptions. Some exceptions the buyer can live with and some would be highly objectionable to him if he realized their significance. He cannot rely upon the lender for in some cases the title may be insurable for the limited period of a mortgage, but not for the indefinite period of the fee ownership.

    There are a variety of title searches, based upon various statutes of limitations. The minimal period is 20 years, an average is 30 years and the maximum 60 years. Each period has its advantages based on problems which may be present in a particular title. Titles based on tax sale foreclosures, those derived through a trustee in bankruptcy, the sheriff, or other government officials or agents may require an examination of records and sources outside the normal halls of record.
    Premises with certain special appurtenances, such as easements, rights of way, private or public, and riparian rights may require searches of premises beyond the premises in question. Premises which may consist of not only real estate but fixtures will require searches of financing statements on file in the Clerk's Office or at the Office of the Secretary of State.
    It is obvious that a buyer does not merely step up to the counter of a search or title company and say, "Sell me a search or title policy," and expect to get a standard one of either. They are not ready-made, but custom-built. The first basic question is: Do I require and want a search, or a title policy? What are the advantages and disadvantages of each? If a search, what variety, a 20, 30 or 60 year one? What should the search cover by way of premises? Are there any other proceedings which I must have searched besides those in the Register of Deeds, Clerk's Office, Surrogate's Office, Clerk of the Federal District Court and N.J. Superior Court? If title insurance, will the standard exceptions be acceptable? What exceptions can I live with?
    If a buyer is faced with these questions, how much more so is the real estate agent? At least the buyer can be objective and without any conflict of interest, while the realtor, the agent for the seller, who will probably receive a "rebate" from the title or abstract company, can scarcely be.
    It is obvious that the selection of the proper title search or title policy and the extent and nature of the legal liability of the searcher or insurer is fraught with numerous legal problems for which the buyer's attorney is trained to advise. Based on such advice, the buyer can make a sound decision and avoid unnecessary expenses and headaches.
    Is the public served by the practice of title and abstract companies issuing a title policy or providing an abstract to a party other than the seller, buyer or their attorney? Obviously not. Since the practice does constitute the practice of law and such practice by a lay corporation or person is not in the public interest, it constitutes the unauthorized practice of law.
    Q. Is a title or abstract company guilty of the unlawful practice of law when it conducts real estate settlements on its premises without the presence of an attorney for any of the parties to the transaction?
    Evidence before this committee discloses a growing practice in the southern part of the State to exclude lawyers from the real estate transaction completely. With the realtors ordering the searches, with title companies holding the closing at their offices or at the realtor's office, and with the title company preparing the necessary instruments to remove exceptions, it was admitted that in 90% of the cases, particularly in sale of houses in developments, no lawyer is present at the closing or settlement, either for the seller, buyer, or even the lender. In fact, the realtors and developers discourage the parties from engaging the services of a lawyer for lawyers are "expensive", "slow up" or "foul up" the settlement. The fewer questions asked the better!
    Again, the test is, does this practice serve the public interest?
    There is no question but that the "practice of law embraces the art of conveyancing." Cape May County Bar Association vs. Ludlam, 45 N.J. 121, 124, (1965). The final and more critical act in conveyancing is the closing of settlement. See "Title Insurance and the Unauthorized Practice of Law Controversy," 35 Unauthorized Practice News, Spring 1969 at page 63. This is the time when all streams flow together. The deed and consideration are exchanged in cash or by a mortgage. Resolutions, releases, leases and other conveyancing documents may be required. The search or title policy is brought down to date to establish good and marketable title. Exceptions are removed or accepted. If ever the layman needed legal counsel it is at the settlement. The practice of title companies in holding settlements without the presence of attorneys only lulls the layman into a false sense of security. If the matter of getting a good marketable title is so important as to warrant title insurance at a substantial premium, by the same token, the buyer is warranted in securing independent counsel to assure himself that he will have a good marketable title suitable for his needs. In N.J. State Bar Ass'n v. Northern N.J. Mortgage Associates, 32 N.J. 430, 447, (1960) the Court pointed out that:
        ***to encourage parties to obtain the important protection of independent counsel***the public interest***will be significantly advanced***

    A corporation may not engage in the practice of law "even as an incident to its lawful business", N.J. State Bar Ass'n v. Northern N.J. Mortgage Associates, 22 N.J. 184, 197 (1956).
    Though the title company may claim that it makes no separate charge for title corrective services, this argument was rejected by our Supreme Court in N.J. State Bar Ass'n v. Northern N.J. Mortgage Associates, supra, 32 N.J. at 444.
    The present practice of title companies in conducting closings or settlements without the presence of attorneys, which is part of a system that discourages the presence of attorneys, does constitute the practice of law. Since such practice by a lay corporation or person is not in the public interest, it constitutes the unauthorized practice of law.

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