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#1996333 - 02/17/15 03:22 PM Consumre RE-Must an atty prepare docs?
TNB Offline
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Joined: Mar 2008
Posts: 77
Texas
I have an attorney telling me that all consumer real estate docs MUST be prepared by an attorney in the state of TX. My udnerstanding was the loan has to close at a bank, title company or attorney office. We've been preparing our own small consumer real estat docs for years so I am a little confused that at this point the docs MUST be prepared by an attorney.
I welcome any insight anyone can provide.

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#1996345 - 02/17/15 03:40 PM Re: Consumre RE-Must an atty prepare docs? TNB
swiggles Offline
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swiggles
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The attorney is full of it. You can prepare your own docs. To get title insurance, your loan might have to CLOSE at a title company. Texas Home Equity must close at the bank, attorney or title company but you can still prepare the docs yourself. The bank just can't charge for preparing loan documents in Texas.....deemed to be the illegal practice of law.......
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#1996362 - 02/17/15 03:59 PM Re: Consumre RE-Must an atty prepare docs? TNB
rlcarey Offline
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Galveston, TX
Don't be so quick on that Swiggles:

Chapter 83 of the Texas Government Code provides that only a Texas attorney shall prepare documents for a real estate transaction. Said preparation by any other individuals constitutes an unauthorized practice of the law. Chapter 83 is a codification of the Texas Supreme Court decision in Hexter Title & Abstract Co., Inc. v. Grievance Committee, Fifth Congressional District, State Bar of Texas (179 S.W. 2d 946). In Hexter, Hexter Title contended it had not “practiced” law because it did not charge clients for the preparation services. The Texas Supreme court rejected that position. It held that while a separate charge was not set out and described as legal fees, the legal services performed by the title company “constitute[d] a part of the total service for which the customer pa[id].”

“The defendant apparently advertises and holds itself out as furnishing this legal service without charge. However, it is not true in fact that such services are furnished free of cost to the customer. This legal service is advertised as a leader to induce prospective customers to come in and transact other business in which there is greater profit. It is offered as an inducement to contract for an abstract of title, for which a direct charge is made, or to allow the defendant’s principal to insure the title to the property involved, for which the defendant receives a commission. The furnishing of such legal services constitutes a part of the cost of obtaining the business transacted by the defendant. Evidently it pays, or the practice would be discontinued. It constitutes a part of the total service for which the customers pay. There is therefore “a consideration, reward or pecuniary benefit” flowing to the defendant for the legal services so rendered.”

Hexter Title offered two additional defenses. First, the corporation argued that it was merely preparing legal documents for transactions related to “its own business” and was therefore exempt. Second, the Hexter employees that prepared the documents were licensed attorneys. Both of these defenses were rejected by the Court. The Court held that Hexter’s reasoning would allow any corporation to make similar exemption claims to the unauthorized practice of law by merely alleging the action was part of its business. Specifically, the Court stated that “[l]oan companies and banks could make similar propositions on condition that they be permitted to place a loan on the property.”

“The fact that the corporation has several licensed lawyers in its employment to prepare the instruments in question does not alter the case. . . . His [the corporate attorney’s] acts are the acts of the corporation, and even though the corporation acts through an attorney, it is nevertheless practicing law.” Id. at 953–54.

The Court’s reasoning was more recently upheld in Ray Crain and Credit Management Consulting Co. v. Unauthorized Practice of law Committee of the Supreme Court of Texas and Jeff Lehmann. 11 S.W. 3d 328 (1999). In Ray Crain, the non-attorney defendant and credit management company were permanently enjoined from preparing and filing mechanics liens, lien affidavits, claims, and releases of liens affecting title to real property.

The Texas Supreme Court has summarily dismissed the defenses of (1) not charging for legal documents, (2) preparing legal documents as necessary to protect the interests of the corporation in individual transactions, or (3) using staff attorneys to prepare documents. Chapter 83 codified the decision of Hexter Title. As such, the Texas Government Code prohibits corporations from practicing law in the State of Texas through the preparation of documents related to real estate transactions.
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#1996369 - 02/17/15 04:19 PM Re: Consumre RE-Must an atty prepare docs? TNB
swiggles Offline
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Well....I read that twice and am still not sure what it's telling me. But all three banks for which I've worked, through software systems, prepare their own their own loan documents for consumer real estate loans.
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#1996388 - 02/17/15 04:57 PM Re: Consumre RE-Must an atty prepare docs? TNB
rlcarey Offline
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Galveston, TX
Well, what it is telling you is simple:

Chapter 83 of the Texas Government Code provides that only a Texas attorney shall prepare documents for a real estate transaction.

Every bank doing it does not make it legal. smile
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#1996391 - 02/17/15 05:00 PM Re: Consumre RE-Must an atty prepare docs? TNB
swiggles Offline
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Interesting.....well, I guess we'll continue to break the law.....just sayin'. Otherwise, small consumer loans are out of reach for a lot of folks....who, I assume, would just just go down the street to a bank that doesn't subject its loans to high dollar attorney fees.
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#1996451 - 02/17/15 07:44 PM Re: Consumre RE-Must an atty prepare docs? TNB
TNB Offline
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Joined: Mar 2008
Posts: 77
Texas
Well then, I think there are a LOT more banks than just mine and Swiggles that are breaking the law.
And also I'm surprised Laser Pro would allow one to create the real estate documents. They are very good in keeping up with each state's laws.

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#1996892 - 02/19/15 04:40 PM Re: Consumre RE-Must an atty prepare docs? TNB
Always In Training Offline
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Where the Green Grass Grows
D & H will also tell you that the documents that they create should be reviewed by your bank's counsel. Their boilerplate covers them better than it does you.

Small dollar consumer loans are prepared by us. Small dollar consumer RE loans are prepared by our attorney. We don't want to take a chance that a court would throw our documents out under the above case law that they weren't prepared by an attorney, therefore were illegaly prepared. We use LP to create the disclosures - but the bank's attorney does the note/deed/any other legal recordable RE docs. Yup. It's expensive, that's why the rates on those types of loans are so high. We try to encourage them to put something else up for collateral. Either we pay the fees or they pay the fees - and it would have been cheaper to put up their vehicle for the loan for all of us involved.

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#1996904 - 02/19/15 04:53 PM Re: Consumre RE-Must an atty prepare docs? TNB
swiggles Offline
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I don't know about my current bank, but at my former bank, the bank's legal counsel DID "bless" all legal documents prior to use. Also, some reliance is placed on the software's legal team. It's not like the bank created it's own documents or altered verbiage for any document in the software.
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#1997144 - 02/19/15 11:15 PM Re: Consumre RE-Must an atty prepare docs? TNB
Compl101TX Offline
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W. TX
I found this old thread:

http://www.bankersonline.com/forum/ubbth...true#Post356189

So the main point is "affecting title to real property" and not "preparation of documents related to real estate transactions."?
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#1997165 - 02/20/15 03:03 AM Re: Consumre RE-Must an atty prepare docs? TNB
rlcarey Offline
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Galveston, TX
The use of in-house counsel doesn't work either/ Read section C. No Exception for Corporate Staff Attorneys in the following document:

http://www.loanlawyers.com/pdf_mem/article-documentpreparationasupl2-23-07.pdf

Compl101: I think the thought process on this has matured somewhat in the last 10 years.
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#1997204 - 02/20/15 02:42 PM Re: Consumre RE-Must an atty prepare docs? TNB
Compl101TX Offline
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W. TX
Ok thank you.

I just verified that we always use a lawyer so no problems with this.
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#2000338 - 03/06/15 07:26 PM Re: Consumre RE-Must an atty prepare docs? TNB
4newt Offline
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Posts: 277
East Texas
I know that Section 83 says "preparation of a legal instrument affecting title to real property, including a deed, deed of trust, note, mortgage, and transfer or release of lien."

To clarify, would this include the HUD section of the new Closing Docs coming 8-1-15? For us, that is generally a doc prepared in the law office or the title office. Now we are preparing to be able to complete this new doc in-house. Should we rethink that?
Also, What about a modification /extension of an existing loan prepared in-house? Also considered practicing law??
Last edited by jnewt; 03/06/15 07:26 PM.
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#2000345 - 03/06/15 07:52 PM Re: Consumre RE-Must an atty prepare docs? TNB
rlcarey Offline
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Galveston, TX
Completing a disclosure is not covered.

Modifications, IMHO would be.
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#2000369 - 03/06/15 08:40 PM Re: Consumre RE-Must an atty prepare docs? rlcarey
4newt Offline
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Posts: 277
East Texas
OK, thanks. That was my thought, too.

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#2016986 - 05/29/15 04:21 PM Re: Consumre RE-Must an atty prepare docs? TNB
mport Offline
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Joined: Mar 2014
Posts: 12
Texas
Hi there,

We are having the same issues. As far as I know, we have been preparing our reeal estate loan documentation in house using our ComplianceOne software. With the new TRID requirements we are converting to new software and the question came up, if we would continue to prepare the documents in house.

Now I find that in Texas we are required to have attorney prepared documents for any real estate transaction (consuner and commercial) based on the Texas Government Code Section 83. I am interpreting this correct??? I mean based on the thread it looks I am, and we need to have an attorney prepare our documents??

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#2017004 - 05/29/15 04:47 PM Re: Consumre RE-Must an atty prepare docs? TNB
swiggles Offline
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We don't and we're not......for most transactions.
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#2022234 - 06/23/15 06:43 PM Re: Consumre RE-Must an atty prepare docs? TNB
LauraC Offline
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Joined: May 2015
Posts: 17
New Jersey
Does anyone have a list of all UPOL state requiring attorney review of documents for Real Estate transactions? We are having documents in AR, HI, KY, NV, OH, TX and AR. Any others I might be missing?

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#2022856 - 06/24/15 09:01 PM Re: Consumre RE-Must an atty prepare docs? TNB
Ms.Ski Offline
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Joined: Apr 2007
Posts: 22
RLCarey is on point. Many believe that so long as they do not 'charge' a doc prep fee that they are in the clear--however, there is case law that states that a lender is indirectly charging for the document preparation in the form of another fee when an attorney is not involved. That being said, it is also important to note that the documents must be prepared by or under the supervision of an attorney. Many lenders control their document preparation but have an attorney bless each closing (for lack of a better word). Texas does not like "review" because that has historically equated to "rent a license" and the UPOL board does not look to fondly on this. There are options to work with attorneys in Texas that do not bog down the closing process nor dramatically increase the cost to the borrower. Message me if you would like to discuss further. that being said, for those of you not using an attorney, you may want to read Countrywide v. O'Sullivan 319 F. 3d 732 (class action law suit).

Finally, with respect to your software company warranting compliance with state law? I am unaware of ANY software company that warrants UPOL compliance, much less any state compliance. Most will only warrant federal documents and the standard Agency forms. Few will state that they rep and warrant state disclosure and that the lender who draws documents without the assistance of employees of the software company have complied with state law. They will however rep and warrant that the forms that by themselves, in that closing package are compliant in that state.

LauraC, I have a list of UPOL states, but it is about 10 years old. I would have to look into updating it. That being said, off the top of my head--I would look into the following UPOL state statutes to make sure your company is in compliance:
Kentucky, Ohio (in addition to Texas). Ten years ago, there had a higher UPOL statute than most other states.

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#2023051 - 06/25/15 04:17 PM Re: Consumre RE-Must an atty prepare docs? TNB
trout22 Offline
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Posts: 313
Those of you who are members of IBAT, there's a good Legal Ease on this topic.

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#2126311 - 04/14/17 02:10 PM Re: Consumre RE-Must an atty prepare docs? TNB
WonderWoman77 Offline
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Joined: Nov 2014
Posts: 23
Texas
This has just come up at our bank. We use PPDocs in our consumer mortgage department. However, our attorney is telling us that this applies to all of our commercial real estate transactions also in Texas.

The IBAT Legal Ease seems to imply that this is true. Must they review all of the documents or just the deed?
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#2126323 - 04/14/17 02:31 PM Re: Consumre RE-Must an atty prepare docs? TNB
rlcarey Offline
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Galveston, TX
The prohibition applies to the preparation of a legal instrument affecting title to real property, including a deed, deed of trust, note, mortgage, and transfer or release of lien.

The type of borrower is irrelevant.
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#2150003 - 10/16/17 08:40 PM Re: Consumre RE-Must an atty prepare docs? TNB
trout22 Offline
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Has anyone heard of recent cases in this regard? I heard from a friend that this getting ready to become a hot topic, referencing "multiple court cases" underway, but my preliminary web search has not revealed anything current? Maybe I don't have the right key words, so I thought I'd see if anyone else had this on their radar.

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#2150093 - 10/17/17 04:05 PM Re: Consumre RE-Must an atty prepare docs? TNB
Always In Training Offline
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Where the Green Grass Grows
It came up in my bank recently as someone wanted to change our small dollar HE loan practice. We discussed what was being proposed here. The above cited IBAT link, previous BOL threads, a quote from a compliance resource I use that it's illegal practice of law that the bank draws up documents affecting title on real property. So, we spoke to counsel and we re-negotiated his fees.

I haven't heard any more chatter on it from a state level or case law perspective.

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#2167215 - 03/08/18 04:46 PM Re: Consumre RE-Must an atty prepare docs? TNB
Dodge Offline
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Currently, we have a attorney review our loan documents on each real estate loan. The fee that the attorney charges is then passed on to the customer. I've been told that we are the only bank that passes the fee on to the customer. I've been asked if this permissible? From my research it is permissible, so either the loan officers are exaggerating, banks are not using a outside attorney to review documents, or the bank absorbs the fee.

So, does anyone else pass the fee that the attorney charges for completing or reviewing loan documents to the customer?

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