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Understanding the Unauthorized Practice of Law for Realtors

Written by Todd Ewing on . Posted in Agents, Article.

A Guide to compliance

A Guide for Compliance

Not long ago, I had a front row seat to a contract dispute in which, among other claims, there was a claim against the realtor for unauthorized practice of law (UPL) involving the drafting of a contract addendum.  Fortunately, the parties eventually settled and avoided litigation.

As a realtor, your role is pivotal in guiding buyers and sellers through one of the most significant transactions of their lives. However, the line between providing valuable real estate advice and crossing into the unauthorized practice of law (UPL) can sometimes blur. Understanding this distinction is essential to protect yourself, your clients, and your reputation.

In this blog post, I’ll explore what constitutes the unauthorized practice of law for realtors, the risks of drafting custom legal documents, and legal precedents where realtors have faced litigation for crossing that line.

What Is the Unauthorized Practice of Law?

The unauthorized practice of law occurs when someone provides legal advice or performs legal tasks without being licensed as an attorney. While state-specific statutes and regulations govern UPL, common examples include:

  • Drafting custom legal documents, such as contracts or addenda, outside the scope of pre-approved real estate forms.
  • Offering legal interpretations or advice, such as interpreting the enforceability of contract clauses.
  • Negotiating legal terms that require specialized legal knowledge.

For realtors, the safest approach is to work within the bounds of standardized real estate contracts. These forms are designed to address common scenarios without requiring legal expertise.

Realtors and Writing Addenda

While it may seem harmless to write addenda for a client’s contract, this practice can quickly veer into UPL if it involves creating custom language that interprets or modifies legal rights or obligations.

As you know, our area associations and commissions provide standardized addenda for various scenarios, such as home inspections, financing contingencies, and seller concessions. Using these pre-approved documents ensures compliance with state and federal law and reduces the risk of legal liability.

When clients request unique changes or additions not covered by standardized forms, it’s crucial to advise them to consult an attorney. Federal Title’s attorney staff has the resources to assist you on short notice.  Attempting to draft these provisions yourself may unintentionally create ambiguous or unenforceable language, exposing you and your clients to unnecessary legal risks.

Legal Precedents: Realtors Sued for UPL

Several cases highlight the consequences of realtors engaging in the unauthorized practice of law.

  1. Conway-Bogue Realty Inv. Co. v. Denver Bar Ass’n (1957)
    In this Colorado Supreme Court case, real estate brokers were accused of UPL for drafting legal documents. The court ruled that brokers could fill in standard forms approved by a bar association or real estate commission but could not create custom documents. This case established the importance of standardized forms in protecting realtors from UPL claims.
  2. State v. Buyers Service Co. (1987)
    The South Carolina Supreme Court found that a real estate brokerage violated UPL laws by drafting deeds, mortgages, and notes. This case underscored the importance of leaving complex legal documents to licensed attorneys.
  3. Bar Ass’n of Tenn. v. First Trust Co. (1996)
    In Tennessee, a real estate company faced allegations of UPL for preparing warranty deeds and title opinions. The court emphasized that even seemingly routine legal tasks must be performed by licensed attorneys to protect the public and uphold legal standards.

Tips for Realtors to Avoid UPL

To ensure compliance and protect your business, consider the following:

  1. Stick to Standardized Forms: Always use approved real estate contracts and addenda provided by your real estate commission or association.
  2. Refer Clients to Attorneys: If clients require custom provisions or legal advice, contact Federal Title’s attorney staff. Email: attorneys@federaltitle.com Ph: 202-918-9358
  3. Avoid Legal Interpretations: Steer clear of interpreting contract terms or advising clients on legal implications. Instead, encourage them to consult legal counsel.
  4. Stay Educated: Regularly attend continuing education courses on real estate law and UPL to stay informed about legal boundaries in your state.

Conclusion

While realtors play a crucial role in real estate transactions, crossing into the unauthorized practice of law can have severe consequences. By understanding the limitations of your role and working closely with attorneys when necessary, you can serve your clients effectively while staying on the right side of the law.

If you have questions about real estate contracts or need guidance on UPL compliance, contact attorneys@federaltitle.com for help.


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