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Unauthorized Practice of Law: What is Prohibited in Real Estate Transactions?

By Randy Schulenburg

Managing Real Estate Broker with Schulenburg Realty, Inc. IL License #471.009970

January 24, 2010 11:22 AM

Have you ever wondered if you or an associate ever crossed the line in practicing law in a real estate transaction? After all, what is prohibited in real estate transactions for someone not holding a law degree? Can you give advice on Loan Mods? How about advice on Pre-foreclosures and Short Sales?

I came across a great article that you may find by clicking here: http://firstamerican.com/content.cfm?id=3394. This article was written in 2005 by John C. Murray when the issue of charging "doc prep fees" on transcations, by someone other than an attorney, was challenged in court. I found it to be interesting back then when I tracked this issue.

I'd be curious to know your thoughts as we continue to enter into periods of uncertainty where many people rely on our guidance. We are asked weekly about issues pertaining to Loan Mods, Short Sales and Pre-Foreclosures. Should many of these questions be addressed to an attorney? Do you have your clients sign something stating that you are not providing legal advice?

Curious to know your thoughts . . .

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Yolanda Hoversten

Self Employed - O'Fallon, IL

Referrals for O’Fallon, IL & the Metro East

Hi, Randy. When I recommend to consult a lawyer, I specifically say to use a real estate lawyer.

Chuck's response reminded me that the National Association of Realtors (NAR) can only govern members called Realtors. Any non-member agent can practice selling real estate and not be bound by NAR Code of Ethics and Professional Standards.

Jan 25, 2010 05:28 AM

Randy Schulenburg

Schulenburg Realty, Inc. - Pingree Grove, IL

Schulenburg Realty, Inc.

Thanks for the many detailed comments. They are very helpful to hear others responses to this topic.

Blessings!

Jan 25, 2010 06:10 AM

Lyn Sims

Schaumburg, IL

Real Estate Broker Retired

Well, I guess you have a bag of answers! Too many agents are giving legal advice I'm afraid and it's been discussed in depth here on AR. I personally don't think we should be involved in short sales and giving that advice but many agents do none the less.

Jan 25, 2010 06:18 AM

Mary Wilcox BPOR, CDPE, SFR, ASD, ABR

Reece Nichols-Mary Wilcox - Kansas City, MO

Reece Nichols Mary Wilcox BPOR, CDPE, ASD, SFR, AB

MO is a non-judicial state. We have the fill-in-the-blanks contracts. No attorneys involved per transaction. But, if we cannot "create" the language in any manner for fear it will be practicing law, then how come we are allowed to write amendments to contracts?

Those are definitiely in our own Realtor lingo. It's done everyday. Why is it any different

Jan 25, 2010 06:23 AM

Bill Gillhespy

16 Sunview Blvd - Fort Myers Beach, FL

Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Randy, Great topic. As agents who are trying to be helpful and be viewed as knowledgeable. It is tempting to offer an opinion and forget about the disclaimer.

Jan 25, 2010 06:57 AM

Emily Lowe

RE/MAX Homes and Estates, Lipman Group - Nashville, TN

Nashville TN Realtor

I do have buyers and sellers both sign disclaimers. And I am very careful with my words when trying to "help out" anyone understand any parts of the law. I'm definitely not an attorney.

Jan 25, 2010 07:29 AM

Karen Rittenhouse

www.JKKPropertyInvestors.com - Greensboro, NC

Real Estate Investor

As litigious as this country is, it's best to have them sign something saying we're not attorneys and cannot give legal advice before we even talk to them!

Jan 25, 2010 07:31 AM

Cindy Abel

Southern Nevada Realty, LLC - Las Vegas, NV

I always recommend consulting with an attorney and accountant.

Also, there are people out there with law degrees that think this allows them to practice law. In most states you cannot call yourself an attorney unless you also take and pass the state bar. So, you can have a law degree and still be guilty of practicing without a license.

Jan 25, 2010 08:46 AM

Gene Riemenschneider

Home Point Real Estate - Brentwood, CA

Turning Houses into Homes

I blogged on this. We provide "legal advice" all the time on how to operate legally within the real estate area. However, we should not offer advice on how to handle real estate in the legal arena. There is a fine line and it is hard to know the difference. I never tell anyone not to consult with an attorney.

Jan 25, 2010 08:59 AM

Anonymous

Consumer Reader

This is pretty funny. When I was selling my house, my RE broker was resistant to me having legal representation. She seemed, oh I don't know, threatened? insulted? Maybe that's because I would not sign the listing agreement until after attorney reviewed it. She actually said I was wasting my money hiring a lawyer. RE broker also told me all the things that she would not let him do, because that was her job. Though she was quick enough to refer me to my attorney when I had a question about the disclosure form.

Jan 25, 2010 10:53 AM

#54

Anonymous

Leigh

Sorry, but I couldn't help but laugh while reading most of these comments. I've been reading RE blogs for about 5 years now and I'm still trying to figure out what Realtors/Agents/etc are experts in. Can't give advice but you'll often hear "It's a gret time to buy," "it's a great investment, " etc. Think I might use a RE attorney for my next purchase as I've heard too many horror stories about permits (lack of), square footage, liveable space, etc. Seems like it's can be a challenge to find a good inspector, too, as many don't want to get in the way of a sale as they might lose a future referral.

This wouldn't be such a big deal if it weren't for the biggest purchase in one's life.

Jan 25, 2010 12:03 PM

#55

Susan Neal

RE/MAX Gold, Fair Oaks - Fair Oaks, CA

Fair Oaks CA & Sacramento Area Real Estate Broker

Since I am both an attorney and a real estate broker, I see the issue from a different perspective from some others. I studied things in law school that are not part of the real estate licensing program, and I have litigated many real property cases. A large percentage of the cases involved a bunch of good people who sincerely believed that their position was the right one, but none of them understood the law governing their transaction, including the real estate agents.

I have also heard agents stating what the law provides, and they were well-meaning but wrong. When in doubt, consulting an attorney can be a good idea and can protect your clients. Through NAR and your local association, you can call their attorney and probably get a free consultation if you have a concern, and through our risk management company we also have additional access to an attorney for our office. Take advantage of this benefit and avoid litigation.

Jan 25, 2010 01:29 PM

Todd & Devona Garrigus

Garrigus Real Estate - Beaumont, CA

Broker / REALTORS®

Ah yes. This never-ending question can keep an agent up at night! I'm going to read the article right now...

Jan 25, 2010 01:56 PM

Christine Donovan

Donovan Blatt Realty - Costa Mesa, CA

Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I am an attorney, however, I don't consider myself to be a "real estate" attorney though I am a real estate broker. As a result, especially with short sales, I strongly recommend that my clients obtain the advice of both an accountant/CPA and a real estate attorney.

Jan 25, 2010 03:16 PM

Elliott S. Topkins

Topkins & Bevans-etopkins@topbev.com - Boston, MA

Massachusetts Real Estate and Title Atty

Randy--This is a thought provoking post. I am an attorney in a state, Massadchusetts, where attorney still have considerable influence over real estate tranactions. We prepare and negotiate most purchase agreements, we review the title, wirte the title insurance and conduct the cloisng. We are often arrogrant and aloof, and we have a reputatin of not being geat commnicators. There is a consistent undercirrent in the comments which complians about the futility of utilizing attorneys because they are not knowwledgable where they should be and they do not porvide quick and effective advice.

On the other hand, there are a lot of us who confine our expertise to real estate and related law, and take very seriously our role of providing effective advice on real problems. It is my sense that if realtors could locate these professionals, a lot of the frustration articulated by the comments would go away. Every day of my going to work, I try to be that person.

Elliott Topkin

Jan 25, 2010 08:16 PM

Jon Zolsky, Daytona Beach, FL

Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL

Buy Daytona condos for heavenly good prices

@Brian (43) - you gave a very good description of the issues. It is really helpful and I think that others would agree with me on this one.

Thank you.

Jan 26, 2010 10:04 AM

Matt Robinson

Professional Investors Guild - Pensacola, FL

www.professionalinvestorsguild.com

This is definitely something we need to be very cautious of as agents. I love this business, but it's certainly not worth going to jail over. If the key to real estate is location, location, location, then the key to being an agent is disclosure, disclosure, disclosure!

Jan 26, 2010 12:15 PM

Randy Schulenburg

Schulenburg Realty, Inc. - Pingree Grove, IL

Schulenburg Realty, Inc.

Great comments. I believe much of the issue also has to do with your relationship with the client. As Matt said, "Disclosure, Disclosure, Disclosure" is right on. I've read the same from others said differently.

If we are to do a great service to our customers we will have to answer their questions as honestly and accurately as we can. Referring them to a good attorney, CPA and lender to answer more specific questions is crucial to maintain our integrity as professionals.

The posts by the consumers "post 55 and 56" are much appreciated. It is always great to hear directly from the consumer as to their personal experiences.

Jan 27, 2010 03:01 AM

Beverly Femia

BlueCoast Realty Corporation - Hampstead, NC

Broker Realtor Stager - Greater Wilmington, NC Are

# 8 is perfect and I'll be using it from now on to deal with questions!

Jan 27, 2010 11:43 AM

Wayne B. Pruner

Oregon First - Tigard, OR

Tigard Oregon Homes for Sale, Realtor, GRI

In Oregon you must be a licensed foreclosure expert to give that kind of advice. Most short sale and foreclosure advice falls outside of our licensing.

Feb 08, 2010 02:14 PM