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House Bill 5935: A Shot Across the Bow

A Wake-up Call for the Real Property Bar

by Peter J. Birnbaum
ATG President and Chief Executive Officer

Peter J. Birnbaum photoHouse Bill 5935 (R-Ives) seeks to prohibit attorneys from providing title services when also representing a buyer or seller in a real estate transaction. If enacted, it would destroy an essential element of a lawyer's practice, deny consumers access to legal counsel in the largest financial transaction of their lives, and would be economically devastating to most small law practices.

This legislation comes fast on the heels of ATG's need to file suit for a temporary restraining order to enjoin the Illinois Department of Financial and Professional Regulation (IDFPR) from implementing a new disclosure form that is both unduly intrusive into attorney-client matters and also, unnecessarily pejorative of lawyers providing title services.

ATG has seen similar threats in the past. Most younger lawyers do not fully appreciate the history of ATG (or as we were known in the early years, The Fund).

I hope you will indulge me in a brief overview of this history:

Early History

Attorneys' Title Guaranty Fund, Inc. (ATG or The Fund) was founded in Champaign, Illinois, almost exactly 54 years ago on August 6, 1964. We opened an office in Chicago in the late 1970s.

ATG's business model—allowing lawyers to provide title services as an adjunct to their law practices—was unique to Illinois when we entered the scene.

Before the advent of title insurance, as early as the mid 1800s, lawyers provided opinions of title as a part of their representation of a seller (who was obliged to convey clear title to the buyer). In the post World War II era, "commercial" title companies started forming in major cities and in the Western states. Almost immediately some of these companies attempted to push lawyers out of real estate transactions. These title companies argued that title insurance afforded greater protection for the consumer and covered risks that were more expansive than those covered by a lawyer's opinion on title. Within a very short period of time, lawyers were virtually eliminated from representing consumers in real estate transactions in the western states. The title companies started moving east.

"The Fund Concept" was the philosophical base upon which our founder, Stanley Balbach, along with other lawyers John Satter, Richard Hart, Wilbur Capps, and Jim Elson, formed a title insurance underwriter owned by member attorneys who would provide title services in competition with these commercial title companies. The lawyer preparing the policy would charge for his time and pay a risk premium into "The Fund" to set up a reserve for future claims. The total charges would be the same or less than commercial title insurance. It was thought that this lawyers' cooperative would secure the lawyer's ongoing ability to represent sellers and buyers in residential real estate transactions.

A home purchase is the largest financial transaction of a consumer's life. We believed, then and now, consumers need legal representation in that transaction. "The Fund," we argue, gives consumers the best of both worlds: legal representation and insurance protection.

Our mission was and is to be the premier lawyer service organization for the benefit of the profession and the public.

1980s: Our Success Precipitates Strong Reaction

We enjoyed explosive growth throughout the 1980s.

Some commercial title companies battled "The Fund Concept" from the outset. In 1981 (the year I joined ATG) an article from The Title News (a publication of ALTA, the American Land Title Association) entitled, "The Saga of the Bar Funds," was particularly telling. In that article, Thomas Jackson, erstwhile General Counsel of ALTA wrote, "Like a chronic infection, the bar fund movement has resisted all our efforts to eradicate it and, if left to fester, could ultimately contaminate the entire commercial title insurance market."

During these years, we confronted many challenges from competitors seeking to drive us out of the market. These included a price war launched by Chicago Title and a campaign by Greater Illinois Title who in conjunction with a "consumer group" argued that ATG members limit competition and raise consumer costs by doing title work in conjunction with their law practices. We were also forced to defend several lawsuits and legislative battles wherein our competitors attempted to remove lawyers from the title services business by judicial or legislative fiat. We were quite fortunate in that one commercial company steadfastly supported ATG during these years: First American Title Insurance Company. Our reinsurance relationship with First American allowed us to stay in business and their support was unyielding.

1990s: Imitation...the Most Sincere Form of Flattery

We won all of those battles. By the mid 1990s virtually all other title companies began competing with us to provide title services through law firms. Today, lawyers providing title services is the ubiquitous business model in the Chicago area.

Despite these bruising battles, we made peace with both ALTA and with most of the big commercial companies. Many lawyers on the ATG staff have held leadership positions in ALTA, including my five-year stint on its Board of Governors. The tent, as they say, has gotten bigger.

Today: A Race to the Bottom

In today's market, with some competitors seeking to bolster market share, we have seen market conduct deteriorate in many respects. We have been vocal in our concerns to the regulators and the real estate bar, arguing that we are witnessing a "race to the bottom" in terms of market conduct—be it in the form of improper steering or reciprocal trading by some real estate professionals, junk fees, or duplicative costs. We have opined that many of these problems find root in the hallways of some underwriters and regional agents who seek to garner market share no matter the reputational risk. We have also cautioned that the legal profession needs to be wary of these practices offering the belief that lawyers would be the fall guys for this conduct. Or, in the words of Shakespeare: "The first thing we do, let's kill all the lawyers."

HB 5935 does exactly that: It lays blame for the sins of the market at the doorstep the practicing lawyer, most of whom are solo or small practitioners.

No doubt the market needs an awakening by the title industry as well as the legal profession. "Physician heal thyself," is certainly the best remedy for what ails the marketplace. In the absence of self-correcting behavior, the market needs some form of rational intervention by the regulators. But to lay blame on the hard-working and well-intentioned legal profession is not the cure. Lawyers, I would submit, are an easy scapegoat. I urge you to get active in supporting our legislative, regulatory, and other advocacy efforts to protect the public and the profession. It is not an understatement to say that your practice and your clients' peace of mind is at risk.

Join ATG in the Fight

We urge you to write your state Representative and let him or her know you oppose this legislation, that this legislation will put you out of business and destroy consumers' access to legal counsel in real estate transactions. Call and write your Representatives and let them know you are opposed to HB 5935 and that this bill will harm the consumers throughout the state. See our sample letter for your reference or use.

As always, we welcome your feedback and appreciate your support. Please feel free to Contact Us with your questions or concerns. Thank you.

[Last update: 8-7-18]