North Carolina Closing Process –
Who, What, When, Where, How and Why?
Below is a very simple chart, followed by relevant statutes regarding NC legal requirements for closing real estate transactions and issuance of title insurance coverage. These are in addition to anything required by federal law or RESPA. Actions marked with an asterisk “*” which are the practice of law are subject to the criminal liability and disallowance of fees charged under N.C.G.S. 84-8 and civil penalties under N.C.G.S. 84-10.1.
Action / Who & HowLegal Cites (N.C.G.S. means North Carolina General Statutes)
Preparation or aiding in the preparation of deeds, mortgages, legal docs * / 1. NC licensed attorney, not an employee of a company (other than of a law firm), or legal assistant under their direct supervision,.
2. Actual party (lender, borrower, not a paid representative or non-attorney employee)
N.C.G.S. 84-2.1; N.C.G.S. 84-5; State v. Pledger
Preparer’s name must be shown on face of the deed or deed of trust.
N.C.G.S. 47-17.1
Abstracting or passing upon titles * / NC licensed attorney, or legal assistant under their direct supervision, not a company employee (other than of a law firm)
N.C.G.S. 84-2.1
Title certification for title insurance * / NC licensed attorney on title insurer’s approved attorney list (though may use report of legal assistant under their direct supervision) – NOT EMPLOYED BY, AN OWNER OF OR AFFILIATED OR UNDER CONTRACT WITH THE TITLE INSURANCE COMPANY OR AGENT
N.C.G.S. 58-26-1(a); N.C.G.S. 84-2.1
http://www.northcarolina.ctt.com --> Legal --> Bulls Bulletins Articles & Forms --> Attorneys & Closings
Title update and certification at time of recording * / NC licensed attorney on title insurer’s approved attorney list (though may use report of legal assistant under their direct supervision) – NOT EMPLOYED BY, AN OWNER OF OR AFFILIATED OR UNDER CONTRACT WITH THE TITLE INSURANCE COMPANY OR AGENT
N.C.G.S. 58-26-1(a); N.C.G.S. 84-2.1
http://www.northcarolina.ctt.com --> Legal --> Bulls Bulletins Articles & Forms --> Attorneys & Closings
· Present and identify the documents,
· Direct the parties where to sign the documents, and
· Ensure that the parties have properly executed the documents,
without answering questions, explanation or analysis / Attorney closing is standard in North Carolina. However, a nonlawyer can do these 3 very limited functions (so long as providing no explanation or advice regarding nature or terms of documents being signed).
CAUTION: This is not the normal procedure in NC and the buyer/borrower’s lack of representation is risky to anyone involved. So it is highly discouraged and should be accompanied with significant, clear disclosures to consumer about scope of representation (or lack thereof) and risks to them of failure to retain attorney instead as well as written waivers. The transaction must be effectively controlled by or under the direct supervision of an independent NC licensed attorney, not the non-lawyer. “Coordination” or “handling” by a non-lawyer otherwise may be interpreted that the non-lawyer is, in effect, controlling the transaction and thereby rendering legal representation and advice – the unauthorized practice of law.
No representation of saving money using nonlawyer should be made as this is highly unlikely to be true and may be a clear misrepresentation.
No closing protection coverage is available to a nonattorney other than the actual agent/agency of the title insurance underwriter.
Authorized Practice Advisory Opinion 2002-1, January 24, 2003, revised January 26, 2012 http://www.ncbar.com/ethics/ethics.asp?page=493
N.C.G.S. 58-26-1
See large number of cases decided by the North Carolina State Bar Authorized Practice Committee
Receive and disburse the closing funds only (based on parties’ drafting & agreement on HUD-1 or comparable closing statement, and only after update of title and recording of closing documents) / Attorney closing is standard in North Carolina. A nonlawyer may receive and disburse funds, but only after all legal documents are prepared by a NC attorney (or a party to the transaction) and after an attorney has updated title and recorded documents.
Any funds held and disbursed as part of a residential closing on North Carolina real estate must be held in an account qualifying for interest on trust or escrow accounts and must be reported to the North Carolina State Bar. N.C.G.S. 45A-9
Good Funds Settlement Act, N.C.G.S. Chapter 45A
Authorized Practice Advisory Opinion 2002-1, http://www.ncbar.com/ethics/ethics.asp?page=493
Residential: Illegal to disburse prior to attorney’s update of title and recordation of closing documents. N.C.G.S. 45A-4.
Underwriting & issuing title insurance commitments or policies
/ Issued only by NC licensed title insurance underwriterUnderwriter Lookup à https://sbs-nc.naic.org/Lion-Web/jsp/sbsreports/CompanySearchLookup.jsp
OR licensed appointed agent,
Agent Lookup à https://sbs-nc.naic.org/Lion-Web/jsp/sbsreports/AgentLookup.jsp
as reflected on the NCDOI records.
REQUIRES the opinion of an attorney, licensed to practice law in North Carolina and not an employee or agent of the company, who has conducted or caused to be conducted under the attorney's direct supervision a reasonable examination of the title. N.C.G.S. 58-26-1(a)
Advise or give opinion upon the legal documents, rights of person, etc.*
/ NC licensed attorney only (not an employee of title insurer or company other than law firm, even if an attorney)N.C.G.S. 84-2.1; N.C.G.S. 84-5
Closing Protection Coverage
/ Issued by title insurance underwriter but only for:(1) NC Licensed attorney on their approved attorney list, not an employee of the title insurer or agent or a company other than a law firm OR
(2) Individual with active NC agency license, duly appointed as NC representative of a title insurance company licensed in NC with NC Dept of Insurance (after compliance with examination and registration requirements)
Form and rate must comply with NC Title Insurance Rating Bureau filing with the NC Department of Insurance.
NO BLANKET LETTERS – specific attorney, lender and borrower/buyer must be identified in each letter.
N.C.G.S. 58-26-1
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APPLICABLE TITLE INSURANCE STATUTES
N.C.G.S. § 58-26-1. Purpose of organization; formation; insuring closing services; premium rates; combined premiums for lenders' coverages
(a) Companies may be formed in the manner provided in this Article for the purpose of furnishing information in relation to titles to real estate and of insuring owners and others interested therein against loss by reason of encumbrances and defective title; provided, however, that no such information shall be so furnished nor shall such insurance be so issued as to North Carolina real property unless and until the title insurance company has obtained the opinion of an attorney, licensed to practice law in North Carolina and not an employee or agent of the company, who has conducted or caused to be conducted under the attorney's direct supervision a reasonable examination of the title. The company shall cause to be made a determination of insurability of title in accordance with sound underwriting practices for title insurance companies. A company may also insure the proper performance of services necessary to conduct a real estate closing performed by an approved attorney licensed to practice in North Carolina. Provided, however, nothing in this section shall be construed to prohibit or preclude a title insurance company from insuring proper performance by its issuing agents.
(b) Repealed by Session Laws 2002-187, s. 7.1.
(b1) Domestic and foreign title insurance companies are subject to the same capital, surplus, and investment requirements that govern the formation and operation of domestic stock casualty companies. Domestic title insurance companies are subject to the same deposit requirements that govern the operation of other domestic casualty companies in this State. Foreign or alien title insurance companies are subject to an initial deposit pursuant to G.S. 58-26-31(b), based on the forecasted statutory premium reserve and the supplemental reserve for the first full year of operation in this State, but not less than two hundred thousand dollars ($ 200,000).
(c) This Article shall not be interpreted so as to imply the repeal or amendment of any of the provisions of Chapter 84 of the General Statutes of North Carolina nor of any other provisions of common law or statutory law governing the practice of law.
(d) The premium rates charged for insuring against loss by reason of encumbrances and defective title and for insuring real estate closing services shall be based on the purchase price of the real estate being conveyed or the loan amount and shall not be established as flat fees. If a title insurer has also issued title insurance protecting a lender or owner against loss by reason of encumbrances and defective title, the insurer shall charge one undivided premium for the combination of the title insurance and the closing services insurance.
(e) If the premium stated upon a policy of title insurance has been understated or overstated due to inadvertence, mistake, or miscalculation of the closing attorney or his employees, and the incident is not purposeful or part of a pattern, the Commissioner of Insurance shall not be required to impose a civil penalty or other sanction for the inadvertence, mistake, or miscalculation.
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APPLICABLE PRACTICE OF LAW STATUTES & AUTHORIZED PRACTICE OPINION
§ 84-2.1. "Practice law" defined
The phrase “practice law” as used in this Chapter is defined to be performing any legal service for any other person, firm or corporation, with or without compensation, specifically including the preparation or aiding in the preparation of deeds, mortgages, wills, trust instruments, inventories, accounts or reports of guardians, trustees, administrators or executors, or preparing or aiding in the preparation of any petitions or orders in any probate or court proceeding; abstracting or passing upon titles, the preparation and filing of petitions for use in any court, including administrative tribunals and other judicial or quasi-judicial bodies, or assisting by advice, counsel, or otherwise in any legal work; and to advise or give opinion upon the legal rights of any person, firm or corporation: Provided, that the above reference to particular acts which are specifically included within the definition of the phrase “practice law” shall not be construed to limit the foregoing general definition of the term, but shall be construed to include the foregoing particular acts, as well as all other acts within the general definition. The phrase “practice law” does not encompass the writing of memoranda of understanding or other mediation summaries by mediators at community mediation centers authorized by G.S. 7A-38.5 or by mediators of personnel matters for The University of North Carolina or a constituent institution.
§ 84-4. Persons other than members of State Bar prohibited from practicing law
Except as otherwise permitted by law, it shall be unlawful for any person or association of persons, except active members of the Bar of the State of North Carolina admitted and licensed to practice as attorneys-at-law, to appear as attorney or counselor at law in any action or proceeding before any judicial body, including the North Carolina Industrial Commission, or the Utilities Commission; to maintain, conduct, or defend the same, except in his own behalf as a party thereto; or, by word, sign, letter, or advertisement, to hold out himself, or themselves, as competent or qualified to give legal advice or counsel, or to prepare legal documents, or as being engaged in advising or counseling in law or acting as attorney or counselor-at-law, or in furnishing the services of a lawyer or lawyers; and it shall be unlawful for any person or association of persons except active members of the Bar, for or without a fee or consideration, to give legal advice or counsel, perform for or furnish to another legal services, or to prepare directly or through another for another person, firm or corporation, any will or testamentary disposition, or instrument of trust, or to organize corporations or prepare for another person, firm or corporation, any other legal document. Provided, that nothing herein shall prohibit any person from drawing a will for another in an emergency wherein the imminence of death leaves insufficient time to have the same drawn and its execution supervised by a licensed attorney-at-law. The provisions of this section shall be in addition to and not in lieu of any other provisions of this Chapter. Provided, however, this section shall not apply to corporations authorized to practice law under the provisions of Chapter 55B [Professional Corporations Act] of the General Statutes of North Carolina.
§ 84-5. Prohibition as to practice of law by corporation
(a) It shall be unlawful for any corporation to practice law or appear as an attorney for any person in any court in this State, or before any judicial body or the North Carolina Industrial Commission, Utilities Commission, or the Department of Commerce, Division of Employment Security, or hold itself out to the public or advertise as being entitled to practice law; and no corporation shall organize corporations, or draw agreements, or other legal documents, or draw wills, or practice law, or give legal advice, or hold itself out in any manner as being entitled to do any of the foregoing acts, by or through any person orally or by advertisement, letter or circular. The provisions of this section shall be in addition to and not in lieu of any other provisions of Chapter 84. Provided, that nothing in this section shall be construed to prohibit a banking corporation authorized and licensed to act in a fiduciary capacity [such as named trustee of a trust or executor under a duly-probated Last Will and Testament of a decedent] from performing any clerical, accounting, financial or business acts required of it in the performance of its duties as a fiduciary or from performing ministerial and clerical acts in the preparation and filing of such tax returns as are so required, or from discussing the business and financial aspects of fiduciary relationships. Provided, however, this section shall not apply to corporations authorized to practice law under the provisions of Chapter 55B [Professional Corporations Act] of the General Statutes of North Carolina.
To further clarify the foregoing provisions of this section as they apply to corporations which are authorized and licensed to act in a fiduciary capacity:
(1) A corporation authorized and licensed to act in a fiduciary capacity shall not:
a. Draw wills or trust instruments; provided that this shall not be construed to prohibit an employee of such corporation from conferring and cooperating with an attorney who is not a salaried employee of the corporation, at the request of such attorney, in connection with the attorney's performance of services for a client who desires to appoint the corporation executor or trustee or otherwise to utilize the fiduciary services of the corporation.