This Week in Real Estate: Why are Delaware Real Estate Settlements SO Different?
Contrary to just about every jurisdiction in the country, all real estate settlements for real property a located within the State of Delaware must be performed by a Delaware licensed attorney. The Delaware Supreme Court has designated just about all aspects of a real estate transaction as the practice of law. As such, each and every real estate settlement, whether it be residential or commercial, a purchase or refinance, must be conducted by a Delaware licensed attorney. Anyone not a Delaware licensed attorney performing these services are conducting the unauthorized practice of law and subject to sanctions.
The practice of law, as defined in Delaware, “occurs where there is an exercise of judgment on a legal matter by someone acting in a representative capacity.” Delaware State Bar Association v. Alexander, Del. Supr., 386 A.2d 652, 661 (Del.), cert. denied, 439 U.S. 808 (1978).
The basis for Delaware attorneys’ requirement to perform all real estate settlements derives from the case of In the Matter of: Mid-Atlantic Settlement Servs., et al. 755 A. 2d 389 (Del. 2000) (commonly referred to as “Mid-Atlantic). On September 22, 2006, the Supreme Court of Delaware approved the report and recommendations of the Delaware Board on Professional Responsibility, which determined as follows:
- An attorney licensed to practice law in Delaware is required to conduct a closing of a sale of Delaware real property.
- An attorney licensed to practice law in Delaware is required to conduct a closing of a refinancing loan secured by Delaware real property.
- An attorney licensed to practice law in Delaware is required to be involved in a direct or supervisory capacity in drafting or reviewing all documents affecting transfer of title to Delaware real property or where Delaware real property is used as security for the repayment of a debt or the performance of an obligation, with the exception of home equity loans in which the lender is acting in a pro se capacity and no evaluation of exceptions to title is required.
- The participation of an attorney licensed to practice law in Delaware is necessary in evaluating the legal rights and obligations of the parties, representing the buyer in examining the title and removing exceptions to the title, supervising the disbursement of funds, and responding to questions concerning the legal effect of documents and ramifications of a transaction by which title to Delaware real property is transferred or where Delaware real property is used as security for the repayment of a debt or the performance of an obligation, with the exception of home equity loans in which the lender is acting, in a pro se capacity and no evaluation of exceptions to title is required.
Subsequent to Mid-Atlantic, the question arose whether Delaware attorneys could perform “witness only” closings, whereby the Delaware attorney was present for the signing of the documents and to answer questions, however, the rest of the transaction was performed by non-lawyers. The main issue is whether attorneys are required to perform disbursements. On September 22, 2006, the Supreme Court of Delaware approved the report and recommendations of the Delaware Board on Professional Responsibility finding that attorneys must directly supervise the disbursement of funds from real estate transactions pursuant to Rule 1.15(A) trust accounts. According to the report, attorneys allowing title companies or other third parties to disburse settlement funds are assisting in the unauthorized practice of law and could face sanctions.
Accordingly, at present, the entirety of a real estate settlement, whether it be residential or commercial, purchase or refinance, must be conducted by an attorney licensed to practice law within the State of Delaware.
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ABOUT JAMES LANDON
Jim Landon has practiced real estate law since 2002 and has been involved in real estate investment and construction for most of his life. Jim’s practice focuses on real estate transactions and land use.
Jim represents individuals and privately and publicly held companies in the purchase, sale, leasing, financing, and development of real property. He also represents title insurance companies on commercial purchases and refinancing transactions, as well as providing third-party legal opinions regarding Delaware law related to Delaware entities.
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