Don’t Practice Law, Unless You’re a Lawyer
The relationship between Realtors and Lawyers is interesting. Lawyers do not want Realtors intruding on their turf. When a foreclosure proceeding is filed, it may be considered a lawsuit depending on the foreclosure procedures in your state. Many foreclosures are done by a power of sale in the deed of trust, so it is just a series of notices and other requirements leading to a non-judicial foreclosure. In other words, it is not a court proceeding. However, in many states a foreclosure is a filing with the court, so it can be considered a legal proceeding or lawsuit.
In North Carolina, the Short Sale Addendum to the Listing Agreement says “If a foreclosure or other judicial proceeding is filed with respect to the Property, although Firm may continue to solicit and negotiate offers to purchase and contact, communicate with, obtain information from and supply information to Lienholders, Firm may no longer negotiate the terms and conditions of a Short Sale with Lienholders, as such negotation would constitute the practice of law.” This did not come from a determination by the North Carolina State Bar, as they have no official opinion issued on this issue. What that means to you is that the bar association has not agreed on where the line is between the practice of real estate and the practice of law. This wording came from the North Carolina Association of Realtors. I talked to an attorney at the North Carolina Real Estate Commission who felt it would take an extreme situation of negotiating with a lender for the Realtor’s activity to be ruled to be the unauthorized practice of law, as he felt that presenting an offer to a lender and encouraging the lender to take the short sale is a permissable activity for a Realtor.
Other states have similar interpretations of the line between what a Realtor can do and the practice of law. For example, click on this determination by the Florida Bar’s Standing Committee on the Unauthorized Practice of Law.
Luck for me, I am an attorney. How about you?
If you are not licenced as a lawyer in the state where the property is located and where the client lives, you need to know about the rulings that may restrict what you do in negotiations when a foreclosure has been filed. For states like California, where nearly all the foreclosures are non-judicial in nature, the line may be drawn in one location. For states like North Carolina, where the foreclosures involve a court filing, the line may be in a different location.
One other pitfall to avoid is the regulations on debt counseling. If you charge the seller a fee that is not contingent on the closing of the sale, it can be argued that you are doing debt counseling. So, do not charge any up front fees, just collect commissions if the sale closes.
How do you stay out of trouble? Follow the wording in your forms. For example, in North Carolina, you contact, communicate with, obtain information from and supply information to the lender. You do not use words like negotiate or advocate in any correspondence. Be sure to phrase everything, particularly everything in writing, in terms of contacting, communicating, obtaining and supplying information. You are just communicating, you are not advocating.
How do you find the line? Talk to your broker in charge. You may also want to talk to an attorney, particularly if your firm has one on retainer. Just know where the line is so that you will not have problems. Some of your communication with a lien holder that are in writing might be lasting proof that you are engaged in the unauthorized practice of law, so stay away from the line.