Real Estate and Lender Outsourcing

LENDER OUTSOURCING: CHARTING A NEW COURSE FOR THE REAL ESTATE BAR

The real estate bar province-wide is facing serious challenges in how it works with lenders--and potentially to its own long term viability-as a result of third party programs from a number of quarters. CDLPA and the Working Group on Lender Outsourcing are responding to these challenges by organizing meetings of all of the local law associations that will enable us to educate lawyers in our counties and districts about these issues, and to examine how we, as the bar, can respond to protect lawyers and their clients from these incursions.

The Issue

There are significant developments in the real estate field underway affecting how the real estate bar undertakes mortgage work, and the resulting increased costs to our client borrowers. The common theme in these developments is the imposition by the lender of a service provider between the lender and the lawyer. The service provider will usually undertake some of the work traditionally done by the lender (such as sending out instructions) and some of the work done by the lawyer (such as preparing the mortgage and reporting to the lender). The financial burden of adding this player into the real estate transaction generally falls on the consumer-borrower, unless the lawyer lowers his or her fees to compensate for the extra cost.

The Proposal

The Working Group believes that a series of local real estate lawyer meetings with each local association is critical at this time. LawPRO(r), through its TitlePLUS(r) project, is supporting the view of the Working Group that the real estate bar needs to agree on and support a shared vision and preferred solution for real estate conveyancing in its relationship with the lending community, approaching it through a common commercial vehicle such as TitlePLUS. To this end, it would be beneficial for the Working Group and LawPRO to receive feedback on questions like:

How should the legal community respond to single source lender outsourcing? What practical options, to achieve the needs of lenders, can the legal community offer?
How does the real estate bar see the future of processing real estate deals? What tools does the real estate bar need to compete?
How can legal professionalism in real estate practice be maintained, so that the bar maintains this area of practice from incursions by paralegals?

The Solution

As part of the meeting, LawPRO and its technology provider, LawyerDoneDeal Corp., will be available to present options and give an overview of their proposals to the lending community, all of which are completely lawyer-based and focused. LawPRO is our insurer. This is our opportunity to have valuable feedback on an important issue and to contribute to the development of a model that may have long-range implications for conveyancing in Ontario.

It is apparent that lender outsourcing is here to stay as lenders continue to look for ways to reduce their mortgage administration costs through the use of third party intermediaries. If we, as lawyers, intend to remain involved in the practice of real estate conveyancing, then we must find a way to provide our own intermediary services in a manner which will meet lenders needs as well as our own, and those of our clients. This is the full focus and scope of the "virtual intermediary" web site being developed by LAWPRO and LawyerDoneDeal Corp.

In order to remain as a relevant force in real estate conveyancing the real estate bar must come quickly to the understanding that the program offered by LawyerDoneDeal and TitlePLUS is not just another title insurance program. It is a system of practice which is designed to be utilized by lawyers for the benefit of lawyers and their clients on each and every transaction.

Those of our colleagues who complain that TitlePLUS is too time consuming or that is "more complicated" than the title insurance products offered by others such as Stewart Title or First Canadian must come to the realization that they are comparing apples to oranges. Title Insurers such a Stewart or First Canadian are beholden to their shareholders. Their mandate is to be as profitable as possible and toward this end their products are designed and their costs are calculated on the basis of achieving maximum return on investment. Their coverage is offered for the benefit of lenders only. Purchaser clients can have some form of coverage at an additional cost. Since there is no legal service coverage in their policies, lawyers remain at risk in the transaction.

Since these title insurers are offering no indemnity or coverage for the legal services per se, they naturally do not have as much regard in the application process for the work necessary to complete the transaction in a careful and competent manner and advise the client accordingly. Their application is directed to the sole point of underwriting the title insurance policy without as much regard for the complexities of the practice of real estate conveyancing or the legal service risks to which the lawyer is exposed in the transaction, especially in terms of client relationship issues.

The program offered by TitlePLUS through it's affiliation with LawyerDoneDeal focuses not on the need to show profitability to public shareholders, but rather on providing a system of practice which is designed to enhance the viability and competitive position of the legal professional. With LAWPRO, the sale of the title insurance policy is incidental to accomplishing the overriding goal: that of maintaining a stable, geographically dispersed bar providing quality legal services to clients throughout Ontario.

By following the TitlePLUS system of conveyancing the lawyer is required to demonstrate a professional level of competence in the transaction. After all this is what our clients, both lenders and purchasers, are paying us for ... if we're not going to do the work that a competent solicitor should do then we really have no place in the real estate conveyancing business, and we should not be surprised to find ourselves in the same position as lawyers in most American States ... out of conveyancing practice altogether and completely replaced by title insurers. The same title insurers who are now here in Canada. Apples and oranges.

The TitlePLUS application requires the lawyer to do what a competent solicitor should be doing on every transaction in any event. In exchange, our clients are properly and professionally served and we as lawyers receive the comfort of TitlePLUS coverage applying to the transaction. Our role as valuable partners in the conveyancing transaction is preserved and our clients, both lenders and purchasers, get what they paid for and deserve.

The Working Group is intent on meeting with every law association in Ontario in order to educate real estate lawyers everywhere as to these important issues and distinctions. Apples and oranges. LAWPRO is our insurer. It is the only title insurer in Canada that is owned and operated by lawyers and that exists for the benefit of lawyers and their clients.

In order to compete with these American based title insurers in the new lender outsourcing market, TitlePLUS needs the support of the practicing real estate bar in order to reach the critical mass which is needed to have influence with the chartered banks, caisses, credit unions and other institutional lenders. The failure of the bar to recognize these important distinctions and to support its own title insurer, while complying fully with our obligations under the Rules of Professional Conduct, will almost surely contribute to the escalating erosion of the role of the solicitor in real estate conveyancing.

We are on the same path that drove most lawyers in the United States out of the conveyancing business. We, however, have the tools and the power to succeed where they failed. We have our own title insurer. Whether we have the sense and the professional will to fight to maintain our important position in the conveyancing business, remains to be seen.

Clare Allan Brunetta
Chair: CDLPA Real Estate Committee
Co-Chair: Working Group on Lender Outsourcing

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For a more complete review of this important issue members are referred to the following:

* Roadshow schedule - available soon...