FTC and Department of Justice Comment to the Ethics Committee, North Carolina State Bar, Concerning the Involvement of Non-Attorneys in Real Estate Closing and Refinancing Transactions

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
UNITED STATES OF AMERICA
Federal Trade Commission
Washington, DC 20580
Department of Justice
Washington, DC 20530
December 14, 2001
Ethics Committee
North Carolina State Bar
PO Box 25908
Raleigh, NC 27611-5908
Re:
North Carolina State Bar Opinions Restricting Involvement of Non-Attorneys in Real Estate Closings and
Refinancing Transactions
Dear Members of the Committee:
The United States Department of Justice and the Federal Trade Commission write to urge the Committee's
reconsideration of two opinions relating to the involvement of non-attorneys in closing real estate refinancing and
purchase loans, Opinions 2001-4 and 2001-8. Opinion 2001-4 requires the physical presence of attorneys at all
refinancings of residential real estate deals. Opinion 2001-8 requires their presence at the closing conference for real
estate purchases. Based on other states' experience, these opinions are likely to increase closing costs and increase
inconvenience for North Carolina consumers. We also understand that the Committee is considering adopting an
omnibus opinion that would clarify certain situations in which the Opinions do not apply, and we offer comments on
the proposed clarifications.
The Interest And Experience Of The U.S. Department of Justice
and The Federal Trade Commission
The United States Department of Justice and the Federal Trade Commission are entrusted with enforcing this
nation's antitrust laws.
For more than 100 years, since the passage of the Sherman Antitrust Act, the Justice Department has worked to
promote free and unfettered competition in all sectors of the American economy. Restraining competition can force
consumers to pay increased prices or accept goods and services of poorer quality. Consequently, anticompetitive
restraints are of significant concern to the Department, whether they are imposed by a "smokestack" industry or by a
profession. Restraining competition has the potential to injure consumers. For this reason, the Justice Department's
civil and criminal enforcement programs are directed at eliminating such restraints. As part of those efforts, the
Justice Department encourages competition through advocacy letters such as this one. The Department has been

concerned about attempts to restrict non-lawyer competition in real estate closings. The Department has urged
Kentucky and Virginia to reject such opinions, through letters to their State Bars and an amicus curiae brief filed with
the Kentucky Supreme Court last year.(1)
Congress created the Federal Trade Commission in 1914 to prevent unfair methods of competition and unfair or
deceptive acts or practices in or affecting commerce. The Federal Trade Commission is concerned about restrictions
that may adversely affect the competitive process and raise prices or decrease quality. Because the Commission has
broad responsibility for consumer protection, it is also concerned about acts or practices in the marketplace that injure
consumers through unfairness or deception. Pursuant to its statutory mandate, the Federal Trade Commission
encourages competition in the licensed professions, including the legal profession, to the maximum extent compatible
with other state and federal goals. The Commission has challenged anticompetitive restrictions on the business
practices of state-licensed professionals, including lawyers. In addition, the staff has conducted studies of the effects
of occupational regulation(2) and submitted comments about these issues to state legislatures, administrative
agencies, and others. The Commission also has had significant experience in analyzing and challenging restrictions
on competition in the real estate industry.(3)
The Opinions
Broadly speaking, there are two types of residential real estate loan closings: those involving purchases and those
not involving purchases. Prior to closing a purchase, an attorney or other authorized agent will have prepared a deed
transferring ownership and will have overseen the steps necessary to ensure that the seller has clear title to the
property and that the funds for purchase are properly transferred. At the closing, the closer will witness the signing of
the deed transferring ownership, the execution of the documents transferring funds for purchase, and the execution of
the loan documents prepared by the buyer's lender.
Prior to a closing that does not involve a purchase -- such as a refinancing or home equity loan -- the attorney or
other authorized agent will have updated the title history from the time the borrower purchased the property and
overseen the steps necessary to transfer funds from the lender to the borrower and/or the holder of the borrower's
existing mortgage on the property. The closer will then witness the execution of the loan documents and any other
necessary papers.
In lieu of hiring an attorney or other agent prepare the paperwork, search the title, and handle fund transfers, the
lender can choose to perform all of these activities itself.
We understand that prior to the adoption of 2001-4 on October 19, 2001, laypersons were allowed to close residential
refinancing transactions. By requiring lawyers to be physically present at all real estate refinancings, this opinion
deprives North Carolina consumers of the ability to use less expensive or more convenient lay closers or paralegals
working under the supervision of an attorney.
Lawyers are already required for residential real estate purchase closings, but Opinion 2001-8, which requires the
physical presence of a lawyer at such closings, eliminates the possibility that paralegals or others working for the
attorney could conduct the closing conference. These Opinions, and earlier opinions to this effect, prevent lay
services from entering the business of providing real estate purchase closings and from continuing to close
refinancing deals. Both Opinions, however, permit lenders to close their own loans. In addition, we understand from
Assistant Ethics Counsel Deanna Brocker that the Ethics Committee is considering drafting an omnibus opinion
clarifying the limits of these Opinions.
The Public Interest Warrants Granting North Carolinians
the Choice to Use a Lay Settlement Service
In ascertaining whether a service is the practice of law in North Carolina, the Ethics Committee should consider the
public interest. The rules against the unauthorized practice of law are intended to protect the public interest and

should not be construed in a manner inconsistent with that purpose. As the North Carolina Supreme Court concluded
in State v. Pledger,
The [unauthorized practice of law] statute was not enacted for the purpose of conferring upon the legal profession an
absolute monopoly in the preparation of legal documents; its purpose is for the better security of the people against
incompetency and dishonesty in an area of activity affecting general welfare.
257 N.C. 634, 637, 127 S.E.2d 337, 339 (1962) (bracketed material added).
When the Supreme Court of New Jersey considered an Unauthorized Practice of Law (UPL) opinion similar to the
ones at issue here, it wrote:
The question of what constitutes the unauthorized practice of law involves more than an academic analysis of the
function of lawyers, more than a determination of what they are uniquely qualified to do. It also involves a
determination of whether non-lawyers should be allowed, in the public interest, to engage in activities that may
constitute the practice of law.
We determine the ultimate touchstone -- the public interest -- through the balancing of the factors involved in the
case, namely, the risks and benefits to the public of allowing or disallowing such activities.
In re Opinion No. 26 of the Committee on the Unauthorized Practice of Law, 654 A.2d 1344, 1345-46 (N.J. 1995).
In determining how best to protect the public interest, the Committee should balance the harm that would be caused
by banning lay settlements against the harm that might be caused by permitting them, particularly for refinancings. As
explained below, this balancing supports the conclusion that the public interest would be served by allowing
competition from lay settlement services.
The Opinion Would Likely Hurt the Public
By Raising Prices and Eliminating Service Competition
Free and unfettered competition is at the heart of the American economy. The United States Supreme Court has
observed, "ultimately, competition will produce not only lower prices but also better goods and services. 'The heart of
our national economic policy long has been faith in the value of competition.'" National Society of Professional
Engineers v. United States, 435 U.S. 679, 695 (1978) (citing Standard Oil Co. V. FTC, 340 U.S. 231, 248 (1950));
accord, Federal Trade Commission v. Superior Court Trial Lawyers Association, 493 U.S. 411, 423 (1990).
Competition benefits consumers both of traditional manufacturing industries and of services offered by the learned
professions. Goldfarb v. Virginia State Bar, 421 U.S. 773, 787 (1975); National Society of Professional Engineers,
435 U.S. at 689. In several states, non-lawyers compete with attorneys in providing real estate closings. Such
competition has resulted in lower prices and more choices in how and where closing services are provided. The
recently adopted Opinions likely erect an insurmountable barrier against competition from these lay settlement
services.
Opinion 2001-4 could harm consumers who refinance their homes in four ways.
First, it would force North Carolina consumers who would not otherwise pay for the services of a lawyer at closing to
do so. Hence, the Opinion would injure all consumers who might prefer the combination of price, quality, and service
that a lay settlement service offers. Moreover, North Carolinians would be deprived of the savings that could come
from using an attorney's paralegal to perform the closing; they would have to pay the lawyer's higher rate.
Second, the Opinion, by eliminating competition from lay providers, would likely increase the price of lawyers'
settlement services, because the availability of alternative, lower-cost lay services currently restrains the fees that

lawyers can charge. Consequently, even consumers who would otherwise choose an attorney over a lay agent would
likely pay higher prices.
Third, the Opinion could reduce competition from out-of-state mortgage lenders, harming consumers who find lower
interest rates or more attractive refinancing packages with these lenders. Out-of-state lenders may not have facilities
in North Carolina to close loans and often have contracted with in-state lay providers to close them. Some conduct
their entire loan application and approval process via the Internet, simultaneously reducing costs and increasing
customer convenience. The convenience offered by Internet-based mortgage lenders may be especially important to
technologically savvy -- but busy -- families who live in, or are moving to, North Carolina's Research Triangle. The
potential for lower rates may be especially important to borrowers in small communities that have fewer local lenders.
The Opinion could diminish these options.
Fourth, if closings have to be delayed to wait for lawyers to be available to attend them, consumers may be hurt by
changes in interest rates or delays in refinancing at lower rates. Opinion 2001-8, by continuing the ban on non-lawyer
closings of real estate purchases, similarly deprives consumers of these benefits.
The use of lay closers has reduced costs to consumers in other parts of the country. In 1995, after a 16-day
evidentiary hearing conducted by a special master, the New Jersey Supreme Court rejected an opinion eliminating
lay closings. The Court found that real estate closing fees were much lower in southern New Jersey, where lay
settlements were commonplace, than in the northern part of the state, where lawyers conducted almost all
settlements. This was true even for consumers who chose attorney closings. South Jersey buyers represented by
counsel throughout the entire transaction, including closing, paid $650 on average, while sellers paid $350. North
Jersey buyers represented by counsel paid an average of $1,000, and sellers paid an average of $750. In re Opinion
No. 26, 654 A.2d at 1348-49.(4)
The experience in Virginia was similar. Lay settlement services have operated in Virginia since 1981, when the state
rejected an Opinion declaring lay settlements to be the unauthorized practice of law. A 1996 Media General study
found that lay closings in Virginia were substantially less expensive than attorney closings.
Virginia Closing Costs
Median Average 	Average Including Title Examination
Attorneys 	$350 	$366 	$451
Lay Services 	$200 	$208 	$272
Media General, Residential Real Estate Closing Cost Survey, September 1996 at 5. In 1997, Virginia passed a law
upholding the right of consumers to continue using lay settlement services. Va. Code Ann. §§ 6.1-2.19 - 6.1-2.29
(Michie 1997). (At the time, the state Supreme Court had been considering an Opinion similar to the ones adopted by
the North Carolina Bar. Proposed Virginia UPL Opinion No. 183.)
There is no reason to expect North Carolina's experience to be any different. Indeed, we have received anecdotal
evidence from industry representatives that refinancing closings performed by non-lawyers are less expensive than
those performed by lawyers. One representative told us that lenders may pay $200-250 less per closing. At least a
part, if not all, of the savings would be passed on to consumers as borrowers.
Finally, the Opinions are likely to hurt consumers by denying them the right to choose a lay settlement provider that
offers a combination of services that better meets consumer needs. Specifically, lay settlement providers often settle
loans during the evenings or weekends, when consumers are off work, or are willing to come to the consumer's home
or other convenient location. In the case of rural consumers, a closer who travels to their home may be particularly

important. Consumers would lose this convenience under the Opinions; our understanding is that most lawyers are
less likely to accommodate consumers in this manner.
The Goal of Increasing Consumer Protection
Does Not Warrant Adopting this Opinion
The Opinions offer little explanation as to why their adoption is necessary to protect consumers and no factual data to
support the draconian measure of eliminating lay settlements. Antitrust law and policy are themselves very important
forms of consumer protection. Consumers benefit immensely from competition among different types of service
providers. As the United States Supreme Court has explained:
The assumption that competition is the best method of allocating resources in a free market recognizes that all
elements of a bargain - quality, service, safety, and durability - and not just the immediate cost, are favorably
affected by the free opportunity to select among alternative offers.
National Society of Professional Engineers, 435 U.S. at 695 (emphasis added); accord, Superior Court Trial Lawyers'
Association, 493 U.S. at 423. Allowing competition by lay agents permits North Carolina consumers to consider all
relevant factors in selecting a provider of settlement services, such as cost, convenience, and the degree of
assurance that the necessary documents and commitments are sufficient. In general, the antitrust laws and
competition policy require that a sweeping restriction on competition be justified by a credible showing of need for the
restriction and require that the restriction be narrowly drawn to minimize its anti-competitive impact. These
requirements protect the public interest in competition. See generally F.T.C. v. Indiana Federation of Dentists, 476
U.S. 447, 459 (1986).
The Opinions do not contain any showing of need for a near-complete prohibition on lay closing service competition.
Although the question to which Opinion 2001-4 responds refers obliquely to predatory lending issues, the subject is
not addressed in the Opinion itself. The Opinions contain no factual evidence or analysis showing that the availability
of lay services has actually hurt consumers, that lay closers have been responsible for any predatory lending abuse,
or that lay closers are any more likely than attorneys to be involved in predatory lending deals. The Opinions impose
no obligation on the part of attorneys who attend closings to ascertain whether predatory lending is an issue or to
prevent it. Closings may be conducted by any attorney, including those unfamiliar with predatory lending or real
estate issues.
Indeed, the Opinions cite no statistics showing that the proportion of lay settlements that are problematic is greater
than the proportion of problematic attorney settlements. They do not cite any instances of actual consumer injury from
lay closings. A showing of harm is particularly important where, as here, the proposed restraint prevents consumers
from using an entire class of providers. Without a showing of actual harm, the Committee should not restrain
competition by prohibiting lay settlements. Such prohibitions are likely to hurt consumers by raising prices and
eliminating their ability to choose among competing providers based on cost, convenience, and quality of services.
Furthermore, the Opinions do not guarantee that consumers will have the benefit of independent counsel or the ability
to stop a transaction that is not in their best interest. Consumers are not required to hire their own lawyers to
represent their interests and to advise them of all of their rights and obligations. Rather, under North Carolina Ethics
Opinion RPC 210, the lender's lawyer may close the loan and may represent both the buyer and lender with
disclosure of the joint representation. Alternatively, the lawyer may represent only the lender, as long as he/she gives
timely notice to the buyers of this fact, to enable the buyer to decide whether to hire separate counsel or go
unrepresented. Such a lawyer does not have an attorney-client relationship with anyone except the lender. While
these lawyers might be able to provide some legal explanations to consumers, they would not represent them. They
could not advise buyers about whether a particular deed or loan term was in their best interests. Nor would their
presence likely give consumers the leverage to halt a transaction that is against their best interest. The same is true
of a lawyer who represents both the lender and the buyer.

The assistance of a licensed lawyer at closing may be desirable, and consumers may decide they need a lawyer in
certain situations. A consumer might choose to hire an attorney to answer legal questions, provide advice, negotiate
disputes, or offer various protections. Consumers who hire attorneys may get better service and representation at the
closing than those who do not. But, as the New Jersey Supreme Court has concluded, this is no reason to eliminate
lay closing services as an alternative. In re Opinion No. 26, 654 A.2d at 1360. Rather, the choice of hiring a lawyer or
a non-lawyer should rest with the consumer. Id.
Less Restrictive Measures May Protect Consumers
Prohibiting lay services from closing refinancing loans may impose substantially higher closing costs on North
Carolina consumers. These costs should not be imposed without a convincing showing that lay closings have not
only injured consumers, but that less drastic measures cannot remedy the perceived problem. Indeed, North
Carolinians can be protected by measures that restrain competition less than a complete ban on lay settlement. In
permitting lay settlements, the New Jersey Supreme Court requires written notice to consumers of the risks involved
in proceeding with a real estate transaction without an attorney. In re Opinion No. 26, 654 A.2d at 1363. This
measure permits consumers to make an informed choice about whether to use lay settlement services. Virginia,
confronted with similar issues, adopted the Consumer Real Estate Protection Act in 1997. Va. Code Ann. §§ 6.1-2.19
- 6.1-2.29 (West 2001). This statute permits consumers to choose lay settlement providers, but requires the state to
regulate them, providing safeguards through licensure, registration, and the imposition of financial responsibility and
rules for handling settlement funds. Though more regulatory than the New Jersey approach, the Virginia approach it
is clearly a more pro-competitive approach than a ban on lay closings.(5)
The Committee Should Adopt the Proposed
Omnibus Opinion Clarifying the Limits of the Opinions
According to Assistant Ethics Counsel Deanna Brocker, the Committee is considering writing an omnibus opinion
clarifying 2001-4 and 2001-8. Among other things, it would state that the Opinions were not intended to require the
presence of a lawyer at a refinancing or purchase closed by mail, one closed with powers of attorneys, or one at
which neither buyer nor seller is represented by counsel. (In most real estate transactions, the lawyer or lay person
closing the loan represents only the lender.) If the Committee chooses not to rescind Opinions 2001-4 and 2001-8,
we would urge it to adopt these clarifications and expand them. Parties should be able to choose to go unrepresented
by counsel. RPC 210 gives consumers this choice. Moreover, consumers should be able to choose to use mail-in
closings or powers of attorney as appropriate. Permitting mail-in closings without counsel may not entirely mitigate
the anticompetitive effect of the Opinions. Many lenders may require in-person closings to ensure that the materials
are properly completed. Nonetheless, there are buyers who would benefit from this, particularly those who may be
relocating or those who may live outside the state but wish to buy property inside North Carolina.
Clarifying the Opinions in this manner would help reduce the anticompetitive effect of the Opinions, but would not
eliminate their harm to consumers. Some consumers would be able to use lay closers and thus avoid paying the
higher fees that lawyers would charge -- particularly those consumers who, under RPC 210, agree that the lawyer
involved represents the lender only. However, other consumers still would be forced to pay for lawyers and would be
deprived of the right to choose a lay closer if they believed this to be appropriate. The experience of other states
suggests that repealing the Opinions is the best way to protect all North Carolinians.
Conclusion
By prohibiting lay settlements, Opinions 2001-4 and 2001-8 will likely reduce competition. Opinion 2001-4 likely raises
closing costs for North Carolina consumers by requiring them to hire lawyers to close refinancing transactions;
Opinion 2001-8 likely prevents costs from falling by preventing non-lawyers from entering the market for closing real
estate purchases.

Other states' experience suggests that the Opinions will likely cause consumers to pay more for real estate closings.
For example, in Virginia, median lay closing costs were $150 less. In parts of New Jersey where lay closings are
prevalent, buyers on average paid $350 less for lay closings, and sellers paid $400 less. In addition, the Opinions
could curtail competition from out-of-state and Internet-based lenders, potentially increasing costs and reducing the
convenience of the loan application and approval process. The Opinions make no showing of harm to consumers
from lay settlements that would justify these reductions in competition; indeed, they hardly even mention the subject.
The Justice Department and FTC appreciate this opportunity to present our views and would be pleased to address
any questions or comments regarding competition policies.
Sincerely yours,
/s/
Charles A. James
Assistant Attorney General
/s/
Jessica N. Butler-Arkow
Attorney
United States Department of Justice
Antitrust Division
/s/
By Order of the
Federal Trade Commission,
/s/
Timothy J. Muris
Chairman
/s/
Ted Cruz, Director
Office of Policy Planning
[Endnotes:]
1. In addition, the Justice Department has challenged attempts by county bar associations to adopt restraints similar
to the North Carolina Opinions. For example, the Justice Department sued and obtained a judgment against one bar
association that had restrained title insurance companies from competing in the business of certifying title. The bar
association had adopted a resolution requiring lawyers' examinations of title abstracts and had induced banks and
others to require the lawyers' examinations of their real estate transactions. United States v. Allen County Indiana Bar
Association, Civ. No. F-79-0042 (N.D. Ind. 1980). Likewise, the Justice Department obtained a court order prohibiting
another county bar association from restricting the trust and estate services that corporate fiduciaries could provide in
competition with attorneys. United States v. New York County Lawyers' Association, No. 80 Civ. 6129 (S.D.N.Y.
1981).

2. Carolyn Cox and Susan Foster, The Costs and Benefits of Occupational Regulation, Bureau of Economics, FTC,
October 1990.
3. Port Washington Real Estate Board, 120 F.T.C. 882 (1995) (consent order); Industrial Multiple and American
Industrial Real Estate Association, 116 F.T.C. 704 (1993) (consent order); United Real Estate Brokers of Rockland,
Ltd. (Rockland County Multiple Listing System), 116 F.T.C. 972 (1993) (consent order); Bellingham-Whatcom County
Multiple Listing Bureau, 113 F.T.C. 724 (1990) (consent order); Puget Sound Multiple Listing Association, 113 F.T.C.
733 (1990) (consent order).
4. In South Jersey, about 40% of buyers and 35% of sellers were represented by counsel at closing. In North Jersey,
95.5% of buyers and 86% of sellers were represented by counsel.
5. The Virginia approach carries some risk of consumer harm, since licensing regulation itself can be used to thwart
competition. See Cox and Foster, supra note 3.