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The Development of Texas Real Estate Practices

“Go to Hell, I’m going to Texas”

A critical analysis of Texas Real Estate Law and how it applies to real estate licensees

The title of the paper is a variation of a quote by the Davy Crocket “You may all go to Hell, and I will go to Texas”. Since winning it independence from Mexico in 1836 Texas has always exhibited a strong belief in property owner rights. The purchase of real estate is complex and involves a robust body of laws. The state of Texas, in addition, is unique regarding the practice of law as it applies to Real Estate Licensees. Through the use of standardized forms developed by a division of Texas Real Estate Commission (TREC) known as the Broker Lawyer Committee, licensees have the ability to put together contracts and agreements that legally bind buyers and sellers in a transaction

The Texas system of licensing real estate licensees along with the formulation of promulgated forms has afforded the licensee a limited practice of law by allowing them to develop and execute legally binding documents. This system of practice varies drastic from other states and has been developed over 55 years of growth and improvement has permitted the state to rank amongst the highest in the nation for home sales and market stability. The purpose of this study is to answer the following questions: Is the system effective and what is the states view? Does this limited practice of law constitute an unlawful practice? And what are the potential pitfalls or benefits for licensees as it pertains to contract negotiation and the sales process.

This study is relevant because it illustrates the effectiveness of allowing the limited practice of law by licensed real estate professionals. Is also highlights Texas as an innovator of policies and procedures that have allowed the local economy to flourish in spite of national unrest. These policies and procedures are a beacon of light for other states to emulate. It will give valuable insight into the Texas System of Real Estate including its birth, expansion, and progress over a half century. It will also discuss the legal precedence that has molded and guided Texas Real Estate Law.  There is an old saying that goes “you can't know where you are going until you know where you have been.” This analysis will further my understanding of the foundation of laws and practices in the state of Texas. As well as instill pride and joy for being a part of this awesome and unique state.

               Through the use of standardized forms developed by a division of Texas Real Estate Commission (TREC) known as the Broker Lawyer Committee, Real estate licensees have the ability to put together contracts and agreements that legally bind buyers and sellers in a transaction without committing unauthorized practice of law. This illustrates the effectiveness of allowing the limited practice of law by licensed real estate professionals. Is also highlights Texas as an innovator of policies and procedures that have allowed the local economy to flourish in spite of national unrest. These policies and procedures are a beacon of light for other states to emulate.

Development of Texas Real Estate Practices

 The development of Texas real estate practices are enveloped in the history of this great state.  Texas has always been a strong proponent of property rights and actively boasts less restrictive land-use regulation than their counterparts on West Coast and the Pacific Northwest. Even since the Texas Revolution, Texas has exhibited a burning desire for property right. This included the rescinding of Law of April 6, 1830 which outlawed immigrants to settle in territory adjacent to their native country. This amongst other topics ignited the war between Texans and their Mexican rules. And it has had few of the infamous urban redevelopment projects that have been typical of the Northeast and Midwest. In Austin, July of 1845, legislatures began to frame a Constitution under which the Republic of Texas should become a state in the American Union. First Elected Governor for the State of Texas, J. Pinckney Henderson was a member of the Convention of 1845, was elected governor of Texas in November 1845, and took office in February 1846. Texas today has had several recent Texas Supreme Court decisions along with legislative action over the last few years to ensure that constitutionally-granted property rights are being restored to their historic place in Texas law.

Texas Independence from Mexico

The Texas Revolution began in October 1835 and ended with the battle of San Jacinto on April 21, 1836. The seeds of these differences were planted in the habits of the Anglo-American occupants of Texas and its Mexican rulers. In addition to these misunderstanding, the rulers remained convicted that the United States government made use of the colonists to cause trouble in the hope of acquiring Texas by revolution or purchase.  In a convention in 1832 and another in 1833 the colonists asked for a number of privileges and reforms including rescinding the Law of April 6, 1830 which forbids immigrants to settle in territory adjacent to their native country. At the same time, Santa Anna positioned himself to overthrow the Constitution of 1824 and establishing virtual dictatorship by remanning military posts and reorganizing the state government. This aroused bitter opposition and more friction developed as the first contingent of soldiers arrived at Anahuac in January 1835. Only a spark was necessary to set off an explosion. Stephen F. Austin way placed in command of the newly formed Texan "army".  On February 23, Santa Anna's advance force arrived in San Antonio and on March 6, 1836 was the famous battle of the Alamo. The conclusion of the struggle culminated on April 21, 1836 in the battle of San Jacinto when Sam Houston ordered his force of about 900 men forward against Santa Anna's army in the range of 1,300 men. While they were resting, Houston surprised and completely overran the enemy; the battle took only eighteen minutes. This is where the statement "Remember the Alamo!" became begin. The entire Mexican army was destroyed and Santa Anna was captured the following day while retreating. On Houston's command, Santa Anna ordered his second-in-command to withdraw all his troops from Texas. If the Mexican army had remained in Texas, it is probable that the war would have continued. Santa Anna’s life was spared and two treaties were developed, one public, and one secret. The first by its terms, Texas independence was recognized, hostilities were ended, the Mexican army was retired beyond the Rio Grande, confiscated property would be restored, and prisoners would be exchanged. The secret treaty agreed to Santa Anna's release in exchange for his promise that he would do all he could to secure within the Mexican government all the provisions of the public treaty without exception, as well as the enforcement of them. Santa Anna agreed, as was his perceived prerogative, since by destroying the Constitution of 1824 he had assumed authority over Mexican foreign policy. The remaining Mexican government refused to accept these terms, however. Nevertheless, Texas became not only a de facto state but also a de jure state in the eyes of many nations.

Texas Becomes a State

After Texas won its independence, Texans voted overwhelmingly supported annexation to the United States. Fearful of another attack by the Mexican army, along with Comanche and Apache Indians, Texas again petitioned to become a State of the U.S. After failed attempts to formalize an annexation treaty the United States Congress passed a Joint Resolution for annexing Texas. Under the agreement, Texas would keep both its public lands and its public debt. Texas would also have the power to divide into four additional states "of convenient size" in the future if it so desired, and it would deliver all military, postal, and customs facilities and authority to the United States government. In Austin, July of 1845 a convention was held to discuss the proposal. Over a period of several days, they began to frame a Constitution under which the Republic of Texas should become a state in the American Union. When all was said and done, the Convention voted to accept the United States' proposal, with only one delegate dissenting: Richard Bache, Benjamin Franklin’s grandson. The Annexation Ordinance was submitted to a popular vote in October 1845. Once approved by Texas voters, the proposed Annexation Ordinance and State Constitution were submitted to the United States Congress. The United States House and Senate, in turn, accepted the Texas state constitution in a Joint Resolution to Admit Texas as a State which was signed by the president on December 29, 1845. First Elected Governor for the State of Texas , J. Pinckney Henderson Henderson was a member of the Convention of 1845, was elected governor of Texas in November 1845, and took office in February 1846.

Texas Today and Property Rights Today

Texas has traditionally been a strong property rights state. Most Texas cities and counties have far less restrictive land-use controls than are found on the West Coast and the Pacific Northwest. And it has had few of the infamous urban redevelopment projects that have been typical of the Northeast and Midwest. Several recent Texas Supreme Court decisions along with legislative action over the last few years are reigning in excesses and helping to ensure that constitutionally-granted property rights are being restored to their historic place in Texas law. There are many areas of the Texas economy where this proved to be the case, but perhaps none more relevant than the Texas housing market. Unlike most other major urban centers, real estate process held up remarkably well in Texas. One of the main reasons for this is the relative dearth of land use controls in the state.

Indeed, the Federal Reserve Bank of Dallas put out a study showing that Houston fared better than most of the rest of the country because of its lack of zoning: Houston does not just have a larger supply of available land on its outskirts. Unlike all other large U.S. cities, Houston lacks zoning laws restricting industrial, commercial and residential construction to specific neighborhoods. So much land is available in Houston that the cost of each incremental unit rises slowly and keeps the average cost below that of more restrictive metros. Even in the face of significant population growth, this large supply keeps land prices in Houston stable, which over time contributes to lower home prices.

Indeed, Houston and other metros such as Dallas and Atlanta that have relatively more permissive development policies have lower housing prices than more restrictive places do. At $155,800, Houston's median house price is the third lowest among the 12 largest U.S. metropolitan areas and is less than half the average for these cities. Houston's median price is lower than even the national average, which includes inexpensive rural areas. In Houston, for example, minimal land use restrictions have helped create new housing opportunities that keep prices down. This may be one reason why Houston's population in hard-core poverty areas fell by 107,272 (about 48 percent) during the 1990s, one of the largest urban declines according to The Brookings Institution.

The Texas Legislature and the Texas Supreme Court have made significant improvements in property rights protections in recent years. In both cases the changes in law represent a reversal of years of erosion of the property rights of Texans. Property owners, legislators, and judges should continue to press forward to take advantage of and extend these recent gains.

Evolution of the Texas Legal System

The Texas Legal system is broad and covers an array of topics including: Foundation of Law, Structure of Law, Constitutional Law, Legislative Process, Criminal Law and Criminal Procedure. All six topics explain vital parts of US legal system and the Texas system that was modeled after it. Foundation of law explains the origins and the evolution of law though-out history.  Structure of law puts into prospective the many different legal systems in this country. Legislative process is the key to understanding how a bill becomes a law. Criminal law and criminal procedure describe the laws which govern the United States and the appropriate steps taken to enforce such laws. Through our further analysis of Foundation of Law, Constitutional Law, Criminal Law and Criminal Procedures a fundamental understanding of the Texas legal system can be achieved.

In general, law is a dynamic, ever evolving and greatly influenced by the past. Before the 18^th century there was fundamentally only two major schools of thought regarding jurisprudence called positivism and natural law. Natural law is law that is created from man’s natural condition and is referred to as “universal principles of morality and justice”.  It has been defined as “right reason in agreement with nature.”  By Cicero (106–43 B.C.) and Thomas Aquinas (1224–1274) viewed natural law as the “participation in the Eternal Law by rational creatures”. During this time it was universally thought that the Roman Catholic and Protestant God was the source of order, and justice. The best example of which is the Ten Commandments. The writers of Our Declaration of Independence asserted that “all men are created equal, that they are endowed by their Creator with certain unalienable rights that among these are Life, Liberty, and the pursuit of Happiness.” 

Natural law provides a basis upon which to judge the positive law. This is used in regards to the death penalty, abortion and euthanasia. Because of the separation of Church and state it became necessary to create laws that promote social order and stability, seek to establish justice, and determine how the government operates.  Law further developed by the influences of many other factors including, The Code of Hammurabi, Roman law, Law Merchants, and “Stare Decisis” or as translated from Latin “stand by things decided”. In the 19^th century the Historical school of Law emerged with the doctrine of Stare Decisis.  Stare Decisis has become the most sacred rule of law stating, that a judge is to apply the law as ruled in previous court decisions and not make or remake laws.  Our federal government has grown in both size and complexity representing 51 unique and different legal systems. But it remains the model for the Texas Constitution and Legal System. 

Texas Law Applicable to ULP

The inherent power to regulate the practice of law begins with the Constitution of Texas which vests the judicial power of the state in the Supreme Court. Thus, pursuant to the Courts inherent power the Court defines and regulates the practice of law through its rules and through its agency, the State Bar. The rules it has issued in this regard are called the Unauthorized Practice Rules and Consideration. It is a criminal act to violate them Section 81.101 of the Texas Government Code defines the practice of law and Section 81.102 of the Texas Government Code states who may practice law. Section 81.101 defines the practice of law as “the preparation of a pleading or other document incident to an action or special proceeding or the management of the action or proceeding on behalf of a client before a judge in court as well as a service rendered out of court, including the giving of advice or the rendering of any service requiring the use of legal skill or knowledge, such as preparing a will, contract, or other instrument, the legal effect of which under the facts and conclusions involved must be carefully determined.” Section 81.102 tells us that a person may not practice law in this state unless the person is a member of the state bar. In addition the it outlines that the supreme court may promulgate rules prescribing the procedure for limited practice of law by

•          attorneys licensed in another jurisdiction;

•          bona fide law students; and

•          unlicensed graduate students who are attending or have attended a law school approved by the supreme court.

Other rules and regulations that cover this topic include Section 83.001(a) of the Texas Government Code prohibits a "person, other than a person described in Subsection (b), may not charge or receive, either directly or indirectly, any compensation for all or any part of the preparation of a legal instrument affecting title to real property, including a deed, deed of trust, mortgage, and transfer or release of lien. Subsection (b) exempts licensed attorneys, real estate brokers or salesmen and mineral property lease transactions.

History of TREC as it Applies to Legal Education and ULP

The Texas Real Estate Commission (TREC) was created because of the public’s demand for regulation.  The Legislature's continuing intent to provide protection for the public in its dealings with real estate agents is evidenced by amendments to The Real Estate License Act in 1955, 1963, 1967, 1971, 1975, 1979, 1981, 1983, 1985, 1987, 1989, 1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, 2007, and 2009.

When TREC was created in 1955 the amendment required the applicant to pass a written examination as the only step in obtaining a license.  Over the past 55 years educational requirements have changed substantially. In 1963, 30 hours of required education was introduced. This was later increased to 90 hours in 1967 and 180 in 1975. Educational requirements or after January 1, 2002, became 270 classroom hours of “core real estate courses” (this is explained later in the report) in addition to 90 classroom hours over current law.  In September 1, 2003 these mandatory continuing education (MCE) courses required approval by the State Bar of Texas for minimum continuing legal education.

As TREC applies to ULP effective August 29, 1983, amendments to the Act changed the definition of unauthorized practice of law by a licensee was clarified and the Texas Real Estate Broker-Lawyer Committee was recreated in Section 16 of the Act in addition the Commission was authorized to require the use of approved contract forms. This is the basis of current real estate practices in the state of Texas

Current Education Requirements

To obtain a real estate salesperson license in the state of Texas applicants are required to take 210 hours of directed training. These classes include instruction in core principles, rules of agency, and contracts. 60 of these hours are in principles of real estate which provides students with an extensive foundational understanding of real estate terminology, professional obligations, and how they apply in the an everyday application. Additionally, this course insures students will fully understand their obligations according to the rules of the Texas Real Estate Licensing Act. Additional requirements include 30 hours of law of agency, 30 hours of law of contacts, 30 hours of additional core real estate courses and 60 hours of industry acceptable credits. This college credits in business, accounting, finance, and other appropriate classes. Law of agency is designed to cover issues regarding party representation. While law of contracts discusses the parts of a real estate agreement.

Texas Case Law Regarding Real Estate and ULP

            In the state of Texas there are many of cases that deal with the topic of real estate licensees and the unauthorized practice of law. One of these cases includes Brown v. Unauthorized Practice of Law Committee, 742 S.W.2d 34 (Tex. App. Dallas 1987) . In this case appellant agent entered into contracts with individuals and represented them in order to resolve their personal injury and property damage claims on a contingent fee basis. The state bar association's unauthorized practice of law committee, received several complaints with regard to Brown, and sued for practicing law without a license.  The issue that the case covered is the Unauthorized Practice of Law. The court applied rules Tex. Rev. Civ. Stat. Ann. art. 320A-1, § 19(a) (1987) and the XIV amendment of the U.S. Constitution. The court reasoned that appellant actually engaged in the contested activities because his course of conduct impliedly advised clients. Further, U.S. Const. amend. XIV's equal protection laws were not violated because, unlike appellant, claim adjusters handled undisputed and uncontested claims, were licensed by law, and adjusted claims on behalf of someone else who actually handled the claim. In conclusion, the court affirmed the declaration that appellant agent's actions constituted the practice of law and granted a permanent injunction, in favor of appellee, the state bar association's unauthorized practice of law committee. The court held that trial courts had inherent power to determine what constituted the practice of law, that appellant impliedly advised clients by his course of conduct, and that his client's claims were contested.

            Another case that involved the unauthorized practice of law is Unauthorized Practice Committee, State Bar v. Cortez, 692 S.W.2d 47 (Tex. 1985) . Petitioner, state bar unauthorized practice of law committee, brought action against Cortez, seeking to enjoin them from engaging in certain acts that constituted the unauthorized practice of law under Tex. Rev. Civ. Stat. Ann. art. 320a-1, § 19(a) (1985). The Committee of the State Bar of Texas seeks to enjoin the Cortezes from engaging in certain acts alleged to be the practice of law. The trial court rendered judgment n.o.v. for the Unauthorized Practice Committee and issued a permanent injunction against the Cortezes.  The issue in the case was the unauthorized practice of law by the Cortezes. The applicable rule is Tex. Rev. Civ. Stat. Ann. art. 320a-1, § 19(a) (1985). The Court reviewed used Tex. Rev. Civ. Stat. Ann. art. 320a-1, § 19(a) (1985) to determine if the Cortezes had in fact practiced law without a license. The court held that the trial court properly rendered judgment notwithstanding the verdict and in granting the permanent injunction against respondents. Accordingly, the judgment of the court of appeals was reversed, and the trial court judgment was affirmed. This case was used as a foundation to show how Texas uses Tex. Rev. Civ. Stat. Ann. art. 320a-1, § 19(a) (1985) to determine what is declared to be the practice of law.  This case does not however cover the question of licensees and the unauthorized practice of law. Brown v. Unauthorized Practice of Law Committee unlike Unauthorized Practice Committee, State Bar v. Cortez involves a licensee.

The State of Virginia, Real Estate and ULP

In Commonwealth v. Jones & Robins, Inc., 186 Va. 30, 41 S.E.2d 720 (1947), a real estate broker was convicted of practicing law without a license for drafting deeds, notes, deeds of trust, leases, etc. for profit in the state of Virginia. At the time Justice Holt, one of the dissenters, observed that under modern conditions neither professions nor business could function under such conditions he wrote,

“The line between what is and what is not the practice of law cannot be drawn with precision. Lawyers should be the first to recognize that between the two there is a region wherein much of what lawyers do every day in their practice may also be done by others without wrongful invasion of the lawyers’ field.”

To further illustrate his point Chief Justice Holt by comparing the practice of medicine to the practice of law used example of Nurses preparing charts, Technicians tell us the color of their blood. Exclaiming that no court, State or Federal, with or without a statute, has ever held that these instrumentalities are practicing medicine and the educational qualifications of doctors is certainly not less exacting than those required by lawyers, while public interest touching qualifications of doctors is not less vital than that which attaches to lawyers. The object, aim and purpose of a hospital, — the reason for its establishment and operation, is to render and perform medical treatment and nursing of a skilled character. It is the facility for affording the patient a higher and greater degree of nursing and medical attention than would be ordinarily possible outside of a hospital that makes it desirable. The opportunity to render such service enables a hospital to make a higher charge than a hotel or boarding house. The desirability of securing the needed service provides inducement for the patient to enter the hospital. The patient comes to the hospital for advice, aid and treatment — not to give either.

The State of New York, Real Estate and ULP

The New York State Department of State has long considered the unlawful practice of law by a real estate broker or salesperson as grounds for disciplinary action. Its interpretation of what constitutes unlawful practice has been guided by relevant provisions of the Judiciary Law and by the seminal case of Duncan & Hill Realty, Inc. v. Department of State, 62 A.D.2d 690, (4^th Dept. 1976), app dismissed, 45 N.Y.2d 821, 381 N.E.2d 608, 409 N.Y.S.2d 210 (1978). Judiciary Law §478 prohibits the practice of law by non-attorneys, the purpose of which is to protect the public from the dangers of legal representation and advice given by persons not trained, examined, and licensed for such work. Jemzura v. McCue, 45 A.D.2d 797, 357 N.Y.S.2d 167 (3^rd Dept. 1974), app dismissed 37 N.Y.2d 750, 337 N.E.2d 135, 374 N.Y.S.2d 624 (1975). Section 484 of the Judiciary Law additionally provides that “no natural person shall ask or receive, directly or indirectly, compensation for… preparing deeds, mortgages, assignments, discharges, leases or any other instruments affecting real estate… unless he has been regularly admitted to practice, as an attorney or counselor…” A violation of either of these sections is a misdemeanor. It may be prosecuted by the attorney general, or, upon leave of the supreme court, by a bar association. Additionally, should a real estate broker or salesperson be found to have engaged in such unlawful practice, the Department will take independent action against such person’s license.

In Duncan & Hill, the court upheld the Department of State’s determination that a real estate broker who was not a licensed attorney demonstrated untrustworthiness and incompetence in violation of Real Property Law §441-c, finding that, when he prepared documents that included detailed mortgage terms he had devised, he engaged in the unauthorized practice of law. The court recognized that brokers have long been permitted to draft “simple” contracts in the context of their brokerage activities. Duncan & Hill, supra, 62 A.D.2d at 696, 405 N.Y.S.2d at 342. However, the court cautioned as follows:

…the so-called “simple” contract is in reality not simple. It is often the most important legal transaction that the average person will ever undertake—the purchase of a home, and it involves very substantial legal rights which deserve the advice and guidance of a lawyer. The argument that the need for expediting such transactions justifies their consummation without reference to an attorney is specious. The protection of the interests of the parties to such contracts is sufficiently important to justify a little delay for reflection and legal advice, so as to guard against a thoughtless drafting of a hastily conceived contract. The personal interest of the broker in the transaction and the fact that he is employed by one of the opposing parties are further reasons to require that, insofar as the contract entails legal advice and draftsmanship, only a lawyer or lawyers be permitted to prepare the document to ensure the deliberate consideration and protection of the interests and rights of the parties. Duncan & Hill, supra, 62 AD2d at 701, 405 N.Y.S.2d at 345.

Recognizing the intent to protect the public to ensure that real estate brokers and salespersons do not exceed the bound of their competence and prepare documents the execution of which requires a lawyer’s scrutiny and expertise, the court went on to state:

It is for this reason that real estate brokers and agents must refrain from inserting in a real estate purchase offer or counteroffer any provision which requires the exercise of legal expertise. Thus it is not proper for such a broker to undertake to devise the detailed terms of a purchase-money mortgage or other legal terms beyond the general description of the subject property, the price and the mortgage to be assumed or given. A real estate broker may readily protect himself from a charge of unlawful practice of law by inserting in the document that it is subject to the approval of the respective attorneys for the parties. Moreover, a real estate broker or agent who uses one of the recommended purchase offer forms . . . or one recommended by a joint committee of the bar association and realtors association of his local county, who refrains from inserting provisions requiring legal expertise and who adheres to the guidelines agreed upon by the American Bar Association and the National Association of Real Estate Brokers, above noted, has no need to worry about the propriety of his conduct in such transactions. Duncan & Hill, supra, 62 AD2d at 701, 405 N.Y.S.2d at 345.

Under these circumstances, a real estate broker or salesperson who prepares a simple fill-in-the-blanks purchase and sale contract can avoid the unlawful practice of law by including in the contract a condition making it subject to approval by each party’s attorney. Alternatively, brokers and salespersons can utilize a fill-in-the-blanks form that has been approved by a joint committee of the bar association and realtors association of his or her county. Such an approved form would only require that the real estate brokers and salespersons fill in non-legal provisions such as the names of the parties, the date and location of the closing, a description of the property, the consideration for sale and any other relevant facts. The brokers and salespersons would not be permitted to develop any “legal terms”. Further, since the contract establishes significant legal rights and obligations, it should clearly and prominently indicate on its face that it is a legally binding document and clearly and prominently recommend that the parties seek advice and counsel from their lawyers prior to affixing their signature to the document.

Brokers and salespersons must refrain, even with respect to these approved contracts, from providing legal advice to their clients. Nor may they discourage the parties from seeking advice from their attorneys. Brokers and salespersons may not add provisions to the approved contracts unless they make the entire contract subject to and conditioned upon the review and approval of each party’s attorney. In addition, brokers and salespersons may prepare purchase and sale contracts, subject to the above conditions, only as an incident of the purchase and sale of real estate and may not charge a separate fee for preparation of the contract or share in the fees of attorneys for preparation or review of these contracts.

The State of Nebraska, Real Estate and ULP

The Nebraska State Bar Association and the Nebraska judiciary realized it was necessary to more clearly define the term and clarify which activities require a lawyer and what services a nonlawyer can provide to the public without crossing the line. In October of 2007, the Nebraska Supreme Court adopted formal rules to better guide lawyers and nonlawyers on the subject. The rules became effective January 1, 2008.  At first glance, it may appear that non-lawyers would be prohibited from engaging in many of the activities which real estate agents, title insurance companies and banks frequently handle during real estate transactions. The Nebraska Supreme Court adopted several Exclusions and Exceptions which recognize that it is appropriate for nonlawyers to engage in some activities which have historically been conducted by nonlawyers without any controversy.

The end result is that nonlawyers such as real estate agents, title escrow agents, bankers, etc. may continue to fill out pre-printed forms as they have historically done in standard real estate transactions. If a situation arises where a buyer or seller needs an explanation of his or her rights or the meaning of a document, then the buyer or seller should be advised to contact a lawyer. If a client asks you about his or her rights or the meaning of a legal document, you should advise the buyer or seller that you are not an attorney, and you are not allowed to give legal advice.

The Federal Government, Real Estate and ULP

The United States Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) submit this letter in response to the solicitation for public comments by the Standing Committee on the Unlicensed Practice of Law about the performance of certain real estate closing-related activities by nonlawyers.

The Standing Committee will consider whether preparing a deed and facilitating its execution—regardless of whether such deed effects a change of ownership—is the practice of law, thus prohibiting nonlawyers from competing with lawyers to provide these services. Deeds are involved in many types of real estate transactions in Georgia, including, but not limited to the purchase and sale of property (which includes the execution of a warranty deed), mortgage transactions which take the form of a security deed in Georgia; the refinancing of mortgage loans and the creation of new security deeds for that purpose, and the obtaining of second mortgages and home equity lines of credit through deeds that secure debt. Deeds are executed in both residential and commercial transactions. Thus, an opinion such as the one under consideration by the Standing Committee, defining these activities as the practice of law, may have a very broad impact.

Consumers can benefit when nonlawyers compete to provide services that do not legitimately constitute the practice of law. Banning such competition is likely to increase closing costs and decrease convenience for Georgia consumers and businesses. As Professor Catherine Lanctot has noted, “Lawyers historically have used the unauthorized practice of law statutes to protect against perceived incursions by real estate agents, bankers, insurance adjusters, and other groups that seemed to be providing legal services.”(1) Such concerns bespeak caution when, as here, the Standing Committee is asked to define the practice of law in a way that would curb competition from lay providers in preparing and facilitating the execution of deeds. Antitrust laws and competition policy generally consider sweeping restrictions on competition harmful to consumers and justified only by a showing that the restriction is needed to prevent significant consumer injury. Because the requested opinion is likely to restrain competition while likely providing little benefit to consumers, the DOJ and the FTC urge the Standing Committee to find that preparing or facilitating the execution of a deed is not the practice of law, but instead is an activity that can be performed by lay practitioners. Alternatively, we urge the Standing Committee to render no opinion on this issue.

The DOJ and the FTC are entrusted with enforcing the federal antitrust laws. Both agencies work to promote free and unfettered competition in all sectors of the American economy. The United States Supreme Court has observed that, “ultimately, competition will produce not only lower prices but also better goods and services. ‘The heart of our national economic policy long has been faith in the value of competition.’"(2) Competition benefits consumers of both traditional manufacturing industries and services offered by the learned professions.(3) Restraining competition, in turn, can force consumers to pay increased prices or to accept goods and services of poorer quality.

Together, the DOJ and the FTC have become increasingly concerned about efforts to prevent nonlawyers from competing with attorneys in the provision of certain services through the adoption of opinions and laws by state courts and legislatures relating to the unlicensed practice of law.(4) In addressing these concerns, the DOJ and the FTC encourage competition through advocacy letters such as this one. The DOJ and the FTC have been concerned particularly about attempts to restrict nonlawyer competition in real estate closings. We have urged the American Bar Association and the States of Kentucky, Virginia, Rhode Island, and North Carolina to reject such restrictions, through letters and through an amicus curiae brief filed with the Kentucky Supreme Court in 2000 by the DOJ.(5) Moreover, the DOJ has brought suit against bar associations that have attempted to restrain competition from nonlawyers and it obtained injunctions prohibiting this conduct.(6) The FTC also has challenged anticompetitive restrictions on certain business practices of lawyers.(7) Our ongoing concern in this area has led us to submit these comments.

By including overly broad presumptions of conduct considered to be the practice of law, the potential opinion would likely reduce competition from nonlawyers. Consumers, in turn, will likely pay higher prices and face a smaller range of service options. Future growth of competition from lay providers—with the attendant likely reduction in costs and increase in service options—would be severely stunted if not eliminated. For this reason, the DOJ and the FTC urge the Standing Committee either to adopt an opinion concluding that it is not the practice of law to prepare deeds and facilitate their execution or to decline to issue any opinion at all. The Justice Department and the Federal Trade Commission appreciate this opportunity to present our views and would be pleased to address any questions or comments regarding competition policies.

Conclusion

Texas has always had strong beliefs in property owner rights and is unique regarding the practice of law as it applies to Real Estate Licensees. Through TREC developed standardized forms, licensees have the ability to put together legally binding agreements. This limited practice of law through the development of these state documents has permitted the state to rank amongst the highest in the nation for home sales and market stability.  The paper discussed valuable insight into the Texas System of Real Estate including its birth, expansion, and progress over a half century. It will also discuss the legal precedence that has molded and guided Texas Real Estate Law. 

 Texas has always exhibited a burning desire for property right. This included the rescinding of Law of April 6, 1830 which outlawed immigrants to settle in territory adjacent to their native country. This amongst other topics ignited the war between Texans and their Mexican rules. Texas today has had several recent Texas Supreme Court decisions along with legislative action over the last few years to ensure that constitutionally-granted property rights are being restored to their historic place in Texas law. A license is required in every State and the District of Columbia. Prospective brokers and agents must pass a written examination which includes questions on basic real estate transactions and the laws affecting the sale of property. In contrast to Texas’s 210 hours, most states only require candidates to complete between 30 and 90 hours of classroom instruction.

This study explored the effectiveness and states view of the system. It also answered “NO” that in the state of Texas that a limited practice of law does not constitute an unlawful practice. Highlighted was the effectiveness of allowing licensed real estate professionals to fill in agreements. This is a practice that most states are moving to following behind Texas’s lead. Texas policies and procedures are a beacon of light for other states to emulate and give valuable insight into the birth of a prosperous state. Guided by over 55 years of legal precedence, the future only seems to be getting better.

WORKS CITED

Nance, Cheryl (2003). Modern Real Estate Practices In Texas. (pp. 1-6, 12-15, 22-24, 45-63, 68-77, 82-141, 215-241). Chicago: Dearborn Real Estate Education.

REALTOR® Reference. (2007). Austin, Texas: Texas Association of REALTORS®

REALTOR® Legal Case Book. (2007). Austin, Texas: Texas Association of REALTORS®

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