Virginia rules that gives the lucrative business of searching land titles solely to lawyers are a "classic illustration of a group boycott" and must be ended, a federal judge has ruled. The decision could lower the cost of buying homes in Virginia.
U.S. District Court Judge Robert R. Merhige ruled that state-enforced regulations prohibiting nonlawyers from guaranteeing titles violate federal law. They are "offensive to the motions of basic fairness," he said.
Virginia lawyers bitterly fought the suit , brought by a lawyer for a Ralph Nader group, saying an adverse ruling could take "bread out of our youths," according to a lawyer quoted in a Merhige footnote. Virginia State [WORD ILLEGIBLE] officials said yesterday they would appeal the decision.
But Merhige held that the State Bar, an arm of the state government, violated the Sherman Antitrust Act in its regulation of title searches - a step that typically can add as much as 1 per cent of the cost of homes in the state.
In Washington, Alan B. Morrison, director of the Nader-founded Public Citizen Litigation Group, said the rules should lower settlement costs in Virginia, where closing costs are among the highest in the nation. He added that the ruling might prompt further challenges to other work that Virginia lawyers have typically said only they can perform. These might include some estate and tax work, he said.
Unde a directive from the Virginia Supreme Court, the State Bar has issued a total of 47 opinions on what constitutes work that only lawyers can do in the state. On e of those opinions, first issued in 1942 and amended in 1973, held that lawyers alone can perform title certifications.
For nonlawyers, employed by title insurance companies, to perform such searches of land records would constitute the practice of law without a license, the bar's opinions said. In Virginia practicing law without a license is a criminal act.
State Attorney General Anthony F. Troy, who defended the State Bar, already has given notice of appeal to the Fourth U.S. Circuit Court of Appeals, a spokesman for the bar said.
State Bar president Joseph T. Spruill of Tappanannock defended the agency's practice of issuing advisory opinions and said the bar has done so "to protect consumers."
The court's decision does not eliminate lawyers from home purchases in Virginia. The case did not challenge a requirement that lawyers must prepare deeds of sale used in the state, a task taht typically costs far less than title searches.
The preparation of the actual deed of sale is one of what Merhige called "two essential elements" of purchasing property in the state. Each element involves lawyers.
In the step challenged in the case before Merhige, lawyers must be employed to search the land records to "certify" that the seller can offer the buyer a "clear title" to the property: that is, a title that is not subject to challenge by a previous owner of the previous owner's descendants.
Although many lawyers in the state typically employ nonlawyers to undertake land-record checks, the search is usually required before most lending firms will make loans on real estate.
In Maryland and the District of Columbia, title companies employ nonlawyers to do such searches and pass the cost savings on to home buyers in the for of lower title insurance costs, according to some lawyers.
A Virginia Beach firm, Surety Title insurance Agency, Inc., wanted to do this also, but found itself blocked by the opinions issued by the State Bar.
Much of Merhige's decision dealt not with the actual practice of using lawyers for title searches, but with the way the State Bar, using only its own members, determines what constitutes the practice of law in the state.
This process, he said, "places attorneys in the unique position of being able to define the extent of their own monopoly. It belabors the obvious to point out that lawyers in general would financially benefit from an expansive definition of the practice of law."
Lawyers specializing in real estate transactions are likely to "lose substantial fees" by his ruling, Merhige said. But, he claimed the current policy "does not act to advance the consumer interests, but merely that of the attorney. It is neither necessary . . . nor are its anticompetitive effects reasonable. . ."
If Merhige's opinion is upheld by higher courts, it would be the second major setback the Virginia State bar has received in recent years. In mid 1975 the U.S. Supreme Court ruled that the bar had violated federal anti-trust laws by enforcing uniform minimum fee schedules, another device that consumer groups ccharged boosted the price of home buying in Virginia.
There is no dispute, Merhige said, that elminating the requirement that lawyers certify property title "would result in the consumer receiving greater services than presently offered at a substantially lower cost."
Affidavits and exhibits filed in the case indicate the purchasers of a $30,000 home could "save as much as $211" on charges made for title insurance, he said. Savings on insurance for a $60,000 home would be $491 and on a $100,000 home, $871, he said.
Merhige's order did not state how the figure were derived.
A Northern Virginia lawyers group was especially upset over the prospect of lawyers losing title insurance business. Merhige noted in a footnote. "No one has to tell us what it feels like to have one's practice threatened by this type of thing," the judge quoted one lawyer as saying.