Federal Trade Commission and Department of Justice Provide Comments on North Carolina State Bar Opinions Restricting the Involvement of Non-attorneys in Real Estate Closings and Refinancing Transactions

The Federal Trade Commission and the Department of Justice's Antitrust Division today released a joint letter urging the North Carolina State Bar to reconsider two recently adopted Opinions that would prevent non-lawyers from competing with lawyers to perform real estate closings.

The two recent North Carolina Bar Opinions (2001-4 and 2001-8) restrict the involvement of non-attorneys in real estate closings and refinancing transactions. Opinion 2001-4 requires the physical presence of attorneys at all refinancings of residential real estate deals, and Opinion 2001-8 requires their presence at closing conferences for real estate purchases. Both Opinions would cause North Carolinian consumers to pay more for closings than they otherwise would and would restrict the ability of Internet-based lenders to compete in North Carolina.

The letter, signed by Assistant Attorney General for Antitrust Charles A. James and FTC Chairman Timothy J. Muris, concluded that "these Opinions are likely to increase closing costs and increase inconvenience to North Carolina consumers." The letter stated, "The Opinions could curtail competition from out-of-state and Internet-based lenders, particularly increasing costs and reducing the convenience of the loan application and approval process." Muris and James also pointed out that "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."

James and Muris cited evidence from other states showing that non-lawyer closings save consumers significant amounts of money. A 1996 study found that in Virginia, median costs for non-lawyer closings were $150 less than for closings handled by a lawyer. In 1995, an investigation conducted for the New Jersey Supreme Court found that in parts of New Jersey where non-lawyer closings are prevalent, buyers on average paid $350 less for non-lawyer closings, and sellers paid $400 less.

Separately, Muris noted, "Other states' experience suggests that the Opinions could raise closing costs for North Carolina home buyers by between $150 and $400 per transaction. We found no evidence of an accompanying consumer benefit from the Opinions."

James observed, "Under these Opinions, consumers will likely pay more for two reasons. First, North Carolinians who would not pay for a lawyer are forced to do so and, traditionally, lawyers charge more for such services than lay providers. Second, without competition from non-lawyers, lawyers' fees are likely to go up."

Muris and James also expressed concern that the Opinions would likely prevent North Carolinians from benefitting from competition that had led to the offering of more convenient closing services. Non-lawyers may be more willing to travel to the homes of consumers wishing to close, which can be important to rural North Carolinians. Furthermore, they may be willing to meet consumers after work or at other convenient hours. Barring lay competition will likely deprive consumers of these benefits.

The letter also commented on the Committee's consideration of a possible omnibus opinion that would clarify certain situations in which the Opinions do not apply. Among other things, the omnibus opinion clarifying the limits of Opinions 2001-4 and 2001-8 would likely state that they were not intended to require the presence of a lawyer at a refinancing or purchase closed by mail, one closed with powers of attorney, or one at which neither buyer nor seller is represented by counsel.

"If the Committee chooses not to rescind Opinions 2001-4 and 2001-8, we would urge it to adopt these clarifications and expand them," the letter states, by enabling parties to choose to go to closings without counsel representation and to choose mail-in closings or powers of attorney as appropriate. Clarifying the Opinions in this manner "would help reduce the anticompetitive effect of the Opinions, but would not eliminate their harm to consumers," James and Muris conclude. "The experience of other states suggests that repealing the Opinions is the best way to protect all North Carolinians."

The Ethics Committee of the North Carolina State Bar will consider the real estate issue at the State Bar meeting on January 15-18, 2002. Changes to the Opinions or new Opinions recommended by the Committee would be considered by the Council of the State Bar at the following quarterly meeting. Approval by the Council is necessary to make them effective.

The Federal Trade Commission vote to approve the letter for submission to the North Carolina State Bar's Ethics Committee was 5-0. The United States Department of Justice independently made its decision about approving the letter. For more information on the letter at the U.S. Department of Justice, contact Nancy Goodman, Chief, Computers & Finance Section, at 202-307-6200. For more information on the letter at the FTC, contact Jerry Ellig, FTC Office of Policy Planning, 202-326-3528.

Copies of the documents mentioned in this release are available from the FTC and Department of Justice. The FTC's Web site is http://www.ftc.gov and the Department of Justice's Web site is http://www.usdoj.gov/atr. Paper copies of the documents are also available from the Justice Department's Antitrust Documents Group and the FTC's Consumer Response Center. The Justice Department's Antitrust Documents Group can be contacted by phone: (202) 514-2481, fax: (202) 514-3763, or e-mail: atrdocs.grp@usdoj.gov. The FTC's Consumer Response Center can be contacted at Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Call toll-free: 1-877-FTC-HELP.