In every state there are statutes or judicial rules that limit “the practice of law” to only those individuals who have gone through “proper” training (that is, three years of law school) and have become licensed to practice in the state by passing the bar exam. For the rest of us, doing anything that is “lawyer’s work” is illegal and we can be prosecuted under “unauthorized practice of law” rules. (You can do your own legal work. You just can’t do it for anyone else.)
Exactly what kinds of activity are treated as unauthorized practice of law varies from state to state. In some states, for example, real estate closings are under-the-practice-of-law umbrella and therefore the exclusive domain of lawyers. That’s the case in North Carolina. If a person isn’t licensed by the State Bar Association, he’d be in violation of the law if he handled a real estate closing, no matter how much he might know about all the various activities required and how well he did them. The law allows competition only within the ranks of the lawyers. Others must keep out.
In a number of other states, however, real estate closings are not defined as the practice of law and may be done by anyone the parties to the transaction agree on. Lawyers may, of course, handle closings, but the business is not restricted to them. Realtors, title insurers, banks — it’s legal for them to do closings, too. In those states, for instance, Arizona, Michigan, and Missouri, consumers benefit from competition among various providers of closing services, tending to lower costs and increase flexibility.
Last year, the State Bar issued two rulings that further tightened the restriction against unauthorized practice of law. One of them says that a lawyer must be present at all closings. The other says real estate refinancings come under the definition of “practice of law” and therefore must be done with a lawyer present. The first ruling would no doubt lead to considerable inconvenience, particularly in the more remote areas of the state. The second would guarantee a large chunk of new business for bar members.
At one time, that would have been the end of the matter, but in recent years, the Federal Trade Commission and the Antitrust Division of the Department of Justice have been doing something useful — opposing anticompetitive, cartel-protecting rules of the sort that the Bar (and other professional organizations) like to make. Last December, the FTC and Justice Department sent a joint letter to the Ethics Committee of the N.C. State Bar. It questioned the need for the new rules, pointing out that there was no evidence that the lack of a lawyer being present at a closing had caused any problems, and that there was also no evidence that North Carolinians were being harmed by their choice not to hire lawyers to protect their interests in refinancings. The letter asked that the State Bar revoke the rules because they would merely raise costs and reduce convenience for consumers.
Not only does the FTC-DOJ letter advocate the revocation of the two anticompetitive rules, it goes further and suggests that the Bar issue an opinion that would open real estate settlements to nonlawyers. The extent of the Bar’s ability to do that under North Carolina statutes and precedents is questionable, but whether accomplished by a Bar ruling or through legislative action, it is a change that should be made. (The Bar has put off its decision until October while it studies the matter.
Instead of putting up barricades against competition from outsiders, the Bar could do the people of the state a service by standing aside and offering training seminars for any individuals who want to learn how to do closings. It might offer special certification to those — lawyers and nonlawyers — who can demonstrate that they have mastered the intricacies of real estate closings.
While I firmly believe that more competition would lead to lower costs, ultimately this isn’t a financial issue. The issue is freedom. The government and the Bar should not interfere with the freedom of individuals to employ whom they want for legal work; nor should they demand that people who want to enter the market for legal services go through needlessly long and costly training before they are “authorized” to compete.