Cover Story
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therefore offer their services to multi-state lenders as a one stop solution geared towards speed and uniformity in processes and pricing. Mortgage lending moved from the local banks and building and loans to large national mortgage companies who operated in all 50 states utilizing centralized processing. e major shift in lending practices needed a partner who also operated on the same principles of a centralized platform and hence the VMCs filled that role. Vendor management companies would operate a single platform of segmented services and uniformly provide services in the same fashion from state to state, except for the so called “attorney states” where the role and function of a state licensed attorney required “variations on a theme”.
pendent non attorneys, the definition of the practice of law in several states forced a closer attorney management or supervision of this task. In North Carolina, an attorney must examine the title search and The inevitable collision supervise the title opinion. In South Carbetween attorneys and vendor olina, the role of the attorney in supervismanagement companies ing not only the search but also the As the residential mortgage industry opinion of title is much more compregrew and consolidated from the mid 80’s hensive. In these states vendor manageon, vendor management companies grew ment companies would have to make proportionately to meet the demands of changes in their processes to accommothe new central processing theme. In an date these requirements. An attorney attempt to provide uniform services on a would have to be hired to perform some multi-state platform VMCs encountered of the functions performed internally in resistance in several attorney states most vendor management. Some companies notably in the southeast and northeast. failed to comply with attorney state ree essence of vendor management is strictions which led to UPL complaints to break the real estate closing process being lodged against them, followed by into several “pieces” and to outsource “cease and desist” orders. those pieces to vendors whose services VMCs, which stressed the one stop would then be managed. ese “pieces” aspect of their business with an emphasis would include appraisals, tile searches, tax on turn times and pricing, have struggled searches, title clearance and actual settle- to adapt to these attorney state restricments or closings. In the process of a tions. As the incidents of violations grew, mortgage refinance transaction this seg- and complaints about the competition mentation could create a very efficient rose from the real estate attorneys, the work flow. e purchase could also adapt state bar associations became more agto this type of segmentation but the gressive in their efforts to confront the number of additional parties involved, as vendor management practices. In North well as the control of the transaction, led Carolina, the outside company would be to a more cumbersome process. charged with the unauthorized practice of Although the title search or abstract is law. In South Carolina, the individual performed almost exclusively by inde- members of the bar who participated with 8 TAVMA — Spring 2009
VMCs would face disciplinary action thereby making it more difficult to recruit attorneys for any of the outsource functions. Currently a handful of states have attorney restrictions on the real estate transaction forcing VMCs to modify their involvement and in some cases cease doing business in that particular state. Is this conflict about the law or economic competition? e argument rages in each state where the UPL issues exist in real estate transactions. e Bar Associations say that the issue is quite simple - the advice and counsel required in a real estate transaction demand that a licensed attorney in that state provide the same. e VMC responds that it is really an issue of the Bar protecting its turf and blocking competition. In those states where attorney involvement is mandated, are the laws of that state involving real estate ownership or financing of such a nature that an attorney must be consulted? It is doubtful that any of these states have statutes, customs, or practices that truly demand that an attorney be involved as counsel in order to interpret the law or protect the consumer, as is often argued. Due to the standardization of documentation used in the secondary market, it is highly doubtful that an attorney’s involvement would protect the consumer’s interest. is is not to suggest that the real estate client would never need to consult with an attorney, since in fact many transactions contain complexities that attorney involvement is quite prudent. With about 85% of the nation’s states not requiring an attorney’s involvement and with mortgage financing having become standardized, it is hard to imagine that the continuing state mandate for an attorney’s involvement is not some form of protectionism. at having been said, however, many states do continue to enforce age old requirements for attorney involvement and it is clearly the law in those estates, whether egregious or not to vendor management.