This month’s Technical Bulletin concerns document preparation by the title company, including a discussion of the statutes governing title company document preparation as well as which documents a title company can legally prepare.
The Business of Title Insurance
By statute, the business of title insurance companies and agents, in Colorado, is defined as the issuance of title insurance policies and the performance of closing and settlement services in conjunction with the issuance of such policies.
Closing and Settlement Service
According to Division of Insurance regulations, “closing and settlement services” means “providing services for the benefit of all necessary parties in connection with the selling, leasing, encumbering, mortgaging, creating a secured interest in and to real property, and the receipt and disbursement of money in connection with any sale, lease, encumbrance, mortgage, or deed of trust.
This does not include giving legal advice to said parties, nor does it include the preparation of legal documents except where the preparation of such documents is considered to be a secretarial or scrivener-like function delegated to the title entity, e.g., preparing a deed.”
Conway-Bogue vs. Denver Bar Association
In the case of Conway-Bogue Realty Co. v. Denver Bar Ass’n., dated June 10, 1957, the Colorado Supreme Court decided that the preparation of receipt and option deeds, promissory notes, deeds of trust, mortgages, releases of encumbrances, leases, notices terminating tenancies, demands to pay rent or vacate by completing standard and approved printed forms, coupled with the giving of explanation or advice as to the legal effect thereof, does in fact constitute the practice of law.
Furthermore, the Court determined that the defendants in the case as licensed real estate brokers (none of whom were licensed attorneys) should not be enjoined from preparing in the regular course of their business such instruments at the request of their customers, and only in connection with transactions involving sales of real estate, loans for real estate, or the leasing of real estate transactions being handled by them.
The following is a summary of the case given by John E. Gorsuch, legal counsel for the Colorado Association of Realtors, quoted in the August 1957 issue of the Colorado Real Estate News:
“The Court basically stated that the practices in question do amount to the practice of law. However, the Court said that it would not enjoin real estate brokers from doing these simple acts, under the circumstances indicated, because of the Court’s express belief that the public’s best interest is served by the current practice.
“However, the broker’s activity is limited to the following circumstances:
- His office must be connected with the transaction as a broker.
- There must be no charge for preparing the documents other than the normal commission.
- The documents must be prepared on commonly used printed standard and approved forms.
“It is clear from the decision that the broker should not, under any circumstances:
- Prepare any legal documents as a business courtesy or favor, for any transaction with which he is not connected as broker, either with or without pay.
- He should not prepare any documents which cannot be properly prepared on the standard and approved printed form.
- He clearly should not draw wills, contracts, agreements and so forth, except the initial binder contract or other customary agreements of the type used to bind the transaction or sale.
- In addition, it would appear in the best interests of the public and also in conformity with the Court’s opinion for the broker to: a) always recommend to the purchaser that the title be examined; b) inform the parties that each has a right to have the papers prepared by an attorney of their own choosing; c) advise the parties that each has a right to be represented at the closing by an attorney if they desire; and d) in spite of the permission to prepare such documents, there will inevitably arise situations in which the legal complications are beyond the knowledge of the broker; in such instances an attorney’s assistance should always be sought.”
Therefore, title companies are only allowed to type as scrivener the standard and approved documents that a licensed broker can legally prepare. This includes warranty deeds, quit claim deeds, and the like.
Frequently Requested Documents
Besides warranty deeds and similar documents, title companies frequently are asked to prepare other documents, many of which are not approved by the Real Estate Commission. Each of the documents listed below is out of the scope of the title company’s legal authority to prepare:
- Personal Representative’s Deed—The attorney who filed probate is responsible for preparing this document. This applies to Conservators, Guardianships, etc. as well.
- Easement/Road Maintenance Agreements — The parties themselves or their attorneys typically prepare these documents.
- Party Wall Agreements — It is usually recommended that these documents be prepared by an attorney.
- Contract addendums/extensions — Title companies are not licensed by the real estate commission to complete any additions to the real estate contract.
- Homestead waivers — These are lender forms that must be completed by the lender.
- Trust affidavits — Typing of this information could imply a fiduciary duty; therefore, the parties themselves or their attorneys usually prepare these documents.
- Subordination agreements — These must be completed by both lenders and approved by the title company.