Opinion 26 - New Closing/Settlement Requirements

To: All Issuing Agents

RE: Opinion 26 - New Closing/Settlement Requirements

Dear Associates:

By our Underwriting Bulletin No. 95-002 issued March 21, 1995, Richard Najarian provided you with an outline of the New Jersey Supreme Court's decision on Opinion 26 on the Unauthorized Practice of Law and a complete copy of the Court's opinion. Hopefully, you have had a chance to review this very important decision and realize that it requires some changes in how both realtors may present contracts and how title companies conduct closings/settlements. The decision, unfortunately, leaves many questions unanswered. The Court referred the open issues to the Court's Committee on Civil Practice and we can only wait for further clarification. It is my understanding that as of this writing the committee has not set a date to meet on this matter. In the meantime, it will be necessary to be guided by what the Court did say and utilize our best judgment to fill in the missing pieces.

New Closing/Settlement Requirement

Buy/Sell Closings/Settlements

Effective as to all real estate contracts prepared by realtors and executed on or after May 12, 1995 by the parties, it will be necessary for the title officer conducting the closing/settlement (hereinafter the "settlement") to verify, before starting the settlement that the Notice required by the Supreme Court was received by both the buyer(s) and seller(s) prior to their execution of the contract. A copy of the Notice required by the Supreme Court is attached hereto as Exhibit A (hereinafter the "Notice"). Although the Supreme Court did not require that the parties acknowledge receipt of the Notice by signing a copy, realtors may, as a precaution, have the parties acknowledge in writing their receipt of the Notice, so I have added signature lines to the Notice.

The Supreme Court requires that the title officer, before starting the settlement, must verify:

That both the buyer(s) and seller(s) received the Notice;
That the Notice was received before they signed the contract;
How the Notice was given.

Again, the Supreme Court does not require a writing from the parties acknowledging the above facts, but it is our strong suggestion that the title officer document the settlement file by having the parties sign an acknowledgment form similar to that attached hereto as Exhibit B. In any event, the Supreme Court does require that the title file contain a record of how the title officer verified that the Notice was given.

If the Notice was not given or if the title officer conducts the settlement without first verifying that the Notice was given, the title officer may be guilty of practicing law without a license if he/she conducts the settlement, in addition to other potential civil liability. If you start a settlement and find the Notice was not given, you should suspend the settlement and consult with management of your agency or you may call Stewart's State office for further instructions.

Refinance Settlements

The Supreme Court did not address the issue of a title officer conducting a refinance settlement. Since there is no real estate sales contract involved in the transaction, the requirement as to the Notice would seem not to apply. It must be remembered, however, the Supreme Court decision did hold that conducting a settlement was the practice of law. The Court permitted title officers to conduct settlements based on a public policy finding that no harm was being done by permitting the practice. The decision does not grant permission to title officers to practice law. Extreme caution must be exercised by title officers not to give legal advice at a refinance settlement. Title officers are licensed insurance agents which means they can and should answer questions about the policy coverage, but they should not give legal advice.

Preparation of Documents

Conveyancing documents must be prepared by attorneys. The Supreme Court did not authorize title companies or agents to prepare deeds, mortgages and other conveyancing documents. However, a title company or real estate broker may retain an attorney to prepare these documents if it receives a written request from the party on whose behalf the document is being drafted. Therefore, if you are going to request that an attorney prepare the deed on behalf of the seller, you must have in your file a written request from the seller, buyer, lender or such other party on whose behalf the documents are going to be drawn. A suggested form of this request is attached as Exhibit C.

Clearance of Title Objections

The Supreme Court held that title officers may only clear minor objections to title and that where there are serious title objections revealed in the title commitment they may only be cleared by an attorney. Therefore, where a title search reveals serious title objections and you have been requested to conduct the settlement, you should advise the parties as early as possible that the title objections must be cleared before the settlement may be scheduled.

The difference between a minor title objection and a serious title objection is not entirely clear, however, the Court did point to categories one and two of Judge Miller's report as being minor and categories three and four as being serious objections. A copy of Judge Miller's report was distributed to you under Underwriting Bulletin 94-004 on June 7, 1994. Basically, minor objections consist of clearing the "standard" non-record title objections such as parties in possession, marital status, survey matters and the recording gap. In other words, matters which are cleared by a standard affidavit of title, survey or survey affidavit. In addition, minor objections include lien items which are customarily paid off at settlement, such as taxes, mortgages, judgments and other money liens.

Serious title objections are such matters as clearing easements or restrictions which would interfere with the intended use of the property, outstanding interests, preparation of inheritance tax returns or federal estate tax returns to obtain waivers, or matters of a similar nature which customarily require the services of an attorney.

Exhibit A

NOTICE

To Buyer and Seller:
You Must Read This Notice Before Signing the Contract

The Supreme Court of New Jersey requires real estate brokers to give you the following information before you sign this contract. It requires us to tell you that you must read all of it before you sign. Here is the information for both buyer and seller:

1) I am a real estate broker. I represent the seller. I do not represent the buyer. The title company does not represent either the seller or the buyer. Furthermore, both the seller and the buyer should know that it is in my financial interest that the house be sold and that the closing be completed. My fee is paid only if that happens. The title company has the same interest, for its insurance premium is paid only if that happens.

2) I am not allowed, and I am not qualified, to give either the seller or the buyer any legal advice. Neither the title company nor any of its officers are allowed to give either the seller or buyer any legal advice. Neither of you will get any legal advice at any point in this transaction unless you have your own lawyer. If you do not hire a lawyer, no one will represent you in legal matters either now, or at the closing. I will not represent you and the title company and its officers will not represent you in those matters.

3) The contract attached to this notice is the most important part of the sale. It determines your rights, your liabilities, and your risks. It becomes final when you sign it - unless it is canceled by your lawyer within three days - and when it does become final you cannot change it, nor can any attorney you may hire thereafter change it in any way whatsoever.

4) The buyer especially should know that if he or she has no lawyer, no one will be able to advise him or her what to do if problems arise in connection with your purchasing this property. Those problems may be about various matters, including the seller's title to the property. They may affect the value of the property. If either the broker or title company sees that there are problems and that because of them you need your own lawyer, they should tell you. However, it is possible that they may not recognize the problems or that it may be too late for a lawyer to help. Also, they are not your lawyers, and they may not see the problem from your point of view.

5) Whether you, seller or buyer, retain a lawyer is up to you. It is your decision. The purpose of this notice is to make sure you have some understanding of the transaction, the risks, who represents whom, and what their interests are, when you make that decision. The rules and regulations concerning brokers and title companies prohibit each of them from suggesting that you are better off without a lawyer. If anyone makes that suggestion to you, you should carefully consider whose interest they are serving. The decision whether to hire a lawyer to represent your interests is yours and yours alone.

I acknowledge receipt of the above Notice

Date:

__________________________________
Seller

Date:

__________________________________
Buyer

Exhibit B

NOTICE

To Buyer and Seller:
You Must Read This Notice Before Signing the Contract

The Supreme Court of New Jersey requires real estate brokers to give you the following information before you sign this contract. It requires us to tell you that you must read all of it before you sign. Here is the information for both buyer and seller:

1) I am a real estate broker. I represent the seller. I do not represent the buyer. The title company does not represent either the seller or the buyer. Furthermore, both the seller and the buyer should know that it is in my financial interest that the house be sold and that the closing be completed. My fee is paid only if that happens. The title company has the same interest, for its insurance premium is paid only if that happens.

2) I am not allowed, and I am not qualified, to give either the seller or the buyer any legal advice. Neither the title company nor any of its officers are allowed to give either the seller or buyer any legal advice. Neither of you will get any legal advice at any point in this transaction unless you have your own lawyer. If you do not hire a lawyer, no one will represent you in legal matters either now, or at the closing. I will not represent you and the title company and its officers will not represent you in those matters.

3) The contract attached to this notice is the most important part of the sale. It determines your rights, your liabilities, and your risks. It becomes final when you sign it - unless it is canceled by your lawyer within three days - and when it does become final you cannot change it, nor can any attorney you may hire thereafter change it in any way whatsoever.

4) The buyer especially should know that if he or she has no lawyer, no one will be able to advise him or her what to do if problems arise in connection with your purchasing this property. Those problems may be about various matters, including the seller's title to the property. They may affect the value of the property. If either the broker or title company sees that there are problems and that because of them you need your own lawyer, they should tell you. However, it is possible that they may not recognize the problems or that it may be too late for a lawyer to help. Also, they are not your lawyers, and they may not see the problem from your point of view.

5) Whether you, seller or buyer, retain a lawyer is up to you. It is your decision. The purpose of this notice is to make sure you have some understanding of the transaction, the risks, who represents whom, and what their interests are, when you make that decision. The rules and regulations concerning brokers and title companies prohibit each of them from suggesting that you are better off without a lawyer. If anyone makes that suggestion to you, you should carefully consider whose interest they are serving. The decision whether to hire a lawyer to represent your interests is yours and yours alone.

Acknowledgment of Receipt of Notice

To:__________________________________(Agent's Name)

Re: Title No.
Property Address:

This will acknowledge that a written copy of the above notice (or one substantially similar) was attached as the cover page of the contract of sale in this transaction and received by me prior to my signing the contract of sale. Further I was advised by the realtor to read it before signing the contract of sale.

Date:

Seller:__________________________________

Date:

Buyer:__________________________________

Exhibit C

REQUEST FOR PREPARATION OF DOCUMENTS

TO:__________________________________(Agent's Name)

I understand that in order to sell my property a new deed and affidavit of title must be prepared by an attorney. I realize that I can retain an attorney myself and request that he/she prepares the necessary documents. I do not wish to retain an attorney. I request that you have an attorney prepare a deed in the form prescribed in the contract of sale and an affidavit of title in a form acceptable to Stewart Title Guaranty Company. I understand that the attorney who prepares these documents will not represent me at the closing/settlement or give me legal advice relative to the transactions. I understand that his or her legal services will be limited to the preparation of these documents.

I understand that the cost for preparing these documents will be $__________ and I agree to pay such cost after the documents are prepared, even if, for some reason the sale of my property does not take place.

I realize that the attorney preparing the documents will need certain information to do so and authorize you to send him/her a copy of the contract of sale, a copy of my deed to my property, my survey of my property (if I have one), the title commitment and the following information:

(This information is necessary in order to prepare a affidavit of title)

Seller's Names: (1) ______________________________________

(2) ______________________________________

Marital Status of Sellers:

(__) We are not married
(__) We are married to each other. We were married on _________________, 19_____.
The maiden name of ___________________ was ____________________________.
(__) The property being sold has never been occupied as the principal matrimonial residence of
any of use.
(__) Our complete marital history is listed below (include any prior divorces, including the state
where the divorce was granted and approximate date, if the divorce decree is available attach
a copy).

Enter marital history here:

Seller:__________________________________

Virtual Underwriter

Bulletin: NJ000010

Bulletins by State or Territory

Bulletins by Country

Bulletin: NJ000010

References