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Are real estate attorneys necessary in residential closings?

Are real estate attorneys necessary in residential closings?

Q: I read your article on using real estate attorneys in residential closings. What a bunch of drivel. I have handled tens of thousands, if not over 200,000 closings, settlements and escrows in all 50 states since 1996 and have found the greatest costs are always in states where we had to use attorneys.

Tell me why one would need a survey on a home that has changed hands multiple times over the years and where the seller purchased title insurance at the time of the purchase. What does the attorney add other than the preparation of a deed, blessing the contract and educating the buyer? I don’t see or hear it.

The state bar in those states that require counsel have done a very good job of convincing people they must have a lawyer perform closings. I think that is just nonsense. The western states don’t require an attorney, which has worked out to lower costs and [shorten the] time to close.

If you want to get better closings, have your state legislatures/Realtor groups prepare a basic contract for sale, add in the appropriate addendums and be done with the outrageous expense and unnecessary involvement of lawyers.

A: Clearly, you feel strongly about this issue. So do many others.

Over the years, the topic of using attorneys in real estate closings has been a hot-button issue for many of our readers. Sam practices real estate law in the greater Chicago area, and the custom there is for buyers and sellers of real estate to hire an attorney to help them out. But, through his decades of practice, Sam has also represented quite a number of people who come from states where attorneys are not typically used to close residential transactions. He has yet to find a single client who didn’t appreciate having the assistance of an attorney versus going it without representation.

We know that there is a large portion of the country where the custom is not to use attorneys in residential transactions. We like seeing attorneys in these activities, and, yes, we’re biased. We’ve also written about countless sellers and buyers that would have benefitted from legal advice during residential transactions, but they didn’t get that advice at the right time and it cost these people dearly either at the closing or later on.

You mentioned the use of surveys in home sales. We agree that in many home sales, surveys are not necessary. Having said that, a title insurance policy will not cover a homebuyer for survey issues unless a survey was presented at the closing. Title insurance policies exclude matters of survey as a standard practice unless the title company has an opportunity to review the survey prior to issuing the title insurance policy.

In your line of reasoning, buyers don’t need a title insurance policy if the seller obtained a policy when they purchased the home as well. But this reasoning fails to take into account how real estate transfers work in most of the United States.

No buyer should deliver full payment to the seller without knowing that the seller can and will convey good title to the buyer. This is where the settlement agent comes into play. The settlement agent stands in the middle to hold the funds pending the rightful conveyance of title to the buyer. This is also where title insurance makes an appearance, giving buyers comfort that they are actually getting what they think they’re buying.

However, we don’t think that simply having title insurance and a settlement agent is enough to ensure a smooth transaction.

Most homebuyers and sellers require some additional assistance to get through the closing. In some states, they get that assistance from their real estate agents. But as we often remind our readers, real estate agents are not attorneys and should not give legal advice. In those states where buyers and sellers do not use attorneys, and legal issues arise, buyers are left on their own to figure out any gaps in information.

While a good real estate contract is very helpful, and Sam likes to use standardized forms, each real estate transaction has its unique issues that are never quite covered by the standardized documents. Remember, where there are no attorneys, someone usually writes something into the contract to cover the issue in question. Often, that language doesn’t really cover the myriad issues involved, and conflicts arise.

Still, we appreciate your comments, especially if attorneys don’t do their job. In those cases, the lack of assistance means the attorney probably doesn’t merit the fee being charged. Bad apples will spoil any barrel.

Over the many years we’ve been writing this column, we’ve heard negative comments about all of the professionals involved in a typical transaction, from the professional home inspectors, to the agents, settlement or closing agents and attorneys. “Wouldn’t it be great if buyers and sellers could just do their own transactions and not waste all this money?”

There are many technology companies, known collectively as “proptech,” short for real estate property technology, angling to help the real estate industry along this path. At this time, we don’t foresee the near-term elimination of agents, attorneys, settlement companies and inspectors. But as 3D printers may change the future of the home-building industry, that future could be here sooner than we imagine. Thanks for your letter.

(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)

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