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UPDATE FROM ATG ADMINISTRATION:

HUD's "Buyer Select" Program Raises Significant Issues for Real Estate Lawyers

On March 1, 2013, the U.S. Department of Housing and Urban Development (HUD) modified its procedure for closing real estate owned or "REO" transactions. These new procedures could have serious implications for the real estate bar and the clients it serves. The new procedures apply to various regions in the country, including the following counties in northern Illinois: Cook, DuPage, Lake, Will, Boone, Carroll, DeKalb, Grundy, JoDaviess, Kane, Kankakee, Kendall, Lee, McHenry, Mercer, Ogle, Rock Island, Stephenson, Whiteside, and Winnebago.

The program, "Buyer Select Closing Agent Pilot Program," transfers the responsibility for many of the functions traditionally performed by the seller's attorney in Illinois, from HUD's designated counsel to the "Closing Agent." It appears HUD contemplates the Closing Agent functions will be conducted either by the title company or the buyer's attorney. Unfortunately, HUD's approach ignores not only local practice and custom, but also local rules prohibiting the Unauthorized Practice of Law (UPL). One of HUD's local asset managers, PEMCO LTD., provides a summary, Buyer Select Closing Agent Pilot Program, which outlines the program’s scope and procedures, and articulates the responsibilities of the parties, including the Closing Agent.

According to PEMCO's summary, the Closing Agent's responsibilities include, but are not limited to the following:

• Holding earnest money in escrow pursuant to strict instructions in adherence with HUD's Earnest Money Guidelines and Forfeiture and Extension Policy.
• Submitting closing extension requests and fees in connection therewith on behalf of the buyer to PEMCO.
• Preparing (or causing to be prepared) the Deed from HUD to the buyer.
• Obtaining necessary title clearance to clear exceptions from the title commitment, which may in some cases require the skill and expertise of an attorney.
• Advancing the costs for many items that will be required to clear title exceptions/prepare for closing, such as condominium/homeowners' association disclosures, letters and documents, open item bills/estimates of redemption for open/sold real estate taxes, fees and costs for municipal inspections/stamps, etc.
• Preparing the seller's closing statement, which contains the figures to be used to prepare the HUD-1 Settlement Statement.

In response, several title companies have created departments specifically designed to accommodate these procedures. ATG has serious concerns about the UPL implications of a title company performing certain functions that are traditionally performed by lawyers. ATG is not alone in this concern and is working on several fronts to resolve it. Ralph Schuman, president of the Illinois Real Estate Lawyers Association (IRELA), articulates the UPL implications in his letter to local title companies. ATG and IRELA have contacted HUD to request a meeting to work out a resolution.

Several local attorneys have obtained approval to act as HUD vendors and participate as the Closing Agent in these transactions. Any lawyer who does so should pay careful attention to HUD's very strict timelines and closing requirements. Review the details in the PEMCO summary, Buyer Select Closing Agent Pilot Program. 

The inventory of HUD-owned properties will continue to grow over the near term and we expect that ATG agents in many communities will see a lot of these transactions. We hope to resolve this matter in a way that continues to protect consumers and allows lawyers to represent purchasers in a manner that is consistent with Illinois law.

If you have questions about this matter, please contact me. As always, we appreciate your feedback. 

Henry L. Shulruff
ATG Senior Vice President - Business Development

[Last update: 6-25-13]

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