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Thursday, July 20, 2006

Quinlan and Tyson Law Update

We all know that you cannot act as a real estate broker in Illinois without a broker’s license. Likewise, only licensed attorneys can practice law. In the fog of a real estate transaction, the line between these two roles can get blurred. In 1966, the Illinois Supreme Court drew a line between real estate brokers and attorneys that profoundly affected the way real estate closings are handled in Illinois. Recently, that decision was revisited.

In some states, attorneys play little or no role in residential real estate transactions. In others, attorneys play a prominent role, including such matters as title examination. Illinois falls somewhere between the extremes, and the difference has largely to do with the view that each state has taken regarding what constitutes the practice of law.

Today in Illinois, one important aspect of attorney participation in real estate closings is document review and document preparation. Prior to 1966, brokers often handled those aspects of the transaction. It was the Illinois Supreme Court’s decision in Chicago Bar Association v. Quinlan & Tyson, Inc. that changed this by establishing the rules that are used to determine what aspects of document review and preparation actually constitute the practice of law.

Quinlan & Tyson, Inc. was a prominent Chicago real estate brokerage that, like most Illinois brokerages, took the view that the broker’s job was to complete the documents required to close a transaction, including deeds, bills of sale, escrow agreements, affidavits waiving title objections, etc.

The Chicago Bar Association sued, charging that the preparation of such documents by brokers actually constituted the unauthorized practice of law. Before the Illinois Supreme Court, Quinlan & Tyson argued that the preparation of these documents was not the practice of law because it entailed only filling out forms, that the matters at hand were simple and did not require legal training, and that preparing such documents was merely incidental to the broker’s professional role. The Chicago Bar argued essentially that even though a legal form may be simple, knowing its possible consequences is not simple and does require legal training. Thus the issue was framed an the court drew the line as follows:

. . .[W]hen the broker has secured the signatures on the usual form of preliminary contract or offer to purchase, completed by the insertion of necessary factual data, he has fully performed his obligation as broker. The drawing or filling in of blanks on deeds, mortgages and other legal instruments subsequently executed requires the peculiar skill of a lawyer and constitutes the practice of law. Such instruments are often minuments of title and become matters of permanent record. They are not ordinarily executed and delivered until after title has been examined and approved by the attorney for the purchaser. Their preparation is not incidental to the performance of brokerage services but falls outside the scope of the broker’s function.

The court emphasized that its guiding consideration in reaching a decision was not the title or purpose of any specific document, but rather the character of the acts required to complete them. Without much further illumination, this is where the line has remained since 1966 when it comes to the preparation and review of documents necessary to close a real state transaction.

Recently, the Illinois Supreme Court revisited the Quinlan & Tyson decision and strongly reaffirmed its basic principles, adding some further light as to where the line lies between broker and attorney. In King v. In First Capital Financial Services Corp., a class of plaintiffs brought suit against area mortgage lenders, comparing the preparation of mortgage loan documents used in real estate closings to the preparation of deeds, bills of sale, etc. The plaintiffs argued that mortgage lenders were engaging in the unauthorized practice of law by preparing mortgage loan documents for their customers and charging a fee for the preparation.

Relying almost entirely on its earlier opinion in the Quinlan & Tyson case, the court held that the preparation of such documents does, in fact constitute the practice of law. However, the court held, a mortgage lender can prepare these documents for transactions in which it is the lender because lenders, like anyone else, are entitled to represent themselves. In reaching its decision, the court reaffirmed every aspect of its opinion in the Quinlan & Tyson case.

The King case also sheds some further light on the principle expressed in Quinlan & Tyson that “it is the character of the act” that determines the question. In King, the court examined the record for indications that the lenders either advised their borrowers regarding the legal effect of the documents or in any way prevented borrowers from seeking independent legal advice, and found that the lenders had done neither. Had the court found otherwise, it probably would have held that the lenders engaged in the unauthorized practice of law.

Where the Quinlan & Tyson opinion established the principle that it is the “nature of the act” that determines where the line is drawn between broker and attorney, it did so only in the context of filling out particular documents necessary for a real estate closing. The King opinion illustrates that the principles laid down in Quinlan & Tyson are not limited to the question of document preparation but are applicable to all aspects of real estate transactions, and demonstrates its application in an additional context by equating document preparation with the rendering of legal advice.

Douglas Oliver © 2006


At 9:35 AM, Anonymous said...

This is great. Thanks for posting interesting articles.

At 2:18 PM, Blogger REMAN said...

Awesome article. I was just talking today to a client about Quinlan because he was wanting me to change the wording in a contract. I told him he had to go to his attorney for that.


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