Attention Realtors: Are You Engaging in the Unauthorized Practice of Law?

Attention Realtors: Are You Engaging in the Unauthorized Practice of Law?

While there is no longer a statute in effect in Arizona making it a crime to engage in the unauthorized practice of law, the code of ethics governing realtors, much like the rules governing the practice of law for attorneys, make it impermissible to engage in the practice of law without a license.  The Code of Ethics of the National Association of Realtors^® provides, in part, that realtors “shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.”[1]  The foregoing begs two questions: “What constitutes the ‘practice of law’?” and “When should the recommendation be made that a client consult with an attorney?”

The Arizona Supreme Court, in 1961, defined the practice of law as “acts . . . which lawyers have customarily carried on from day to day through the centuries.” While the foregoing definition is not particularly helpful to those trying to figure out what does and does not fall within the “practice of law,” further clarification is found in the Arizona Supreme Court Rules. Those Rules define the “practice of law” to mean the providing of legal advice or services to another by doing such things as:

(i) preparing any document in any medium intended to affect or secure legal rights for a specific person or entity; (ii) preparing or expressing legal opinions; (iii) representing another in a judicial, quasi-judicial, or administrative proceeding, or other formal dispute resolution process such as arbitration and mediation (iv) preparing any document through any medium for filing in any court, administrative agency or tribunal for a specific person or entity; or (v) negotiating legal rights or responsibilities for a specific person or entity.

The Supreme Court Rules do create exceptions to the above definition. For example, it is not considered the practice of law if the preparation of legal documents is incidental to the regular course of business, when said documents are for the exclusive use of the business and not made available to third parties; however, with regard to the foregoing exception, keep in mind that both parts need to be satisfied for the exception to apply.  Thus, if the preparation of legal documents is incidental to your business, but the preparation of those documents by non-attorneys relates to transactions that did not directly involve your business’s rights, it is still considered to be the unauthorized practice of law.

While there have been very few Arizona cases addressing the issue of the unauthorized practice of law as it applies to realtors, hearing panels of the Professional Standards Committee of the Board of the National Association of Realtors^® provide some additional guidance. For instance, one hearing panel concluded that a real estate agent did not engage in the unauthorized practice of law by simply filling in the blanks on a standard purchase contract; however, another panel found that a real estate attorney did engage in the unauthorized practice of law by preparing a simple Power of Attorney document for a client.  With regard to the issue of when a realtor should recommend that legal counsel be obtained, one hearing panel found that a seller’s real estate agent violated Article 13 when he failed to recommend to a buyer, whom he was not representing, that the buyer should consult an attorney to address whether a binding contract had been entered, and to help clarify the buyer’s rights in relation to that issue.

In short, while every situation is likely to contain its own unique facts, some general rules of thumb to help steer clear of an ethics complaint alleging the unauthorized practice of law include: (i) other than filling out form contracts, avoid preparing legal documents for parties to a transaction; (ii) avoid offering any type of legal advice, and (iii) when in doubt as to whether the interest of any party to the transaction requires legal advice, recommend that party consult an attorney.

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[1] Article 13, Code of Ethics for the National Association of Realtors.

About the Author: Garrett Olexa is a Member with the law firm of Jennings, Strouss & Salmon, PLC. He focuses his practice in the areas of real estate and commercial litigation.  For questions, contact Mr. Olexa at golexa@jsslaw.com or 623.878.2222.