Investment

Closing Real Estate Deals with an Attorney – When & Where is it Required?

When you’re buying and selling real estate all over the country, one issue you may eventually encounter is the fact that some states have very particular laws about who can and can’t be involved in the preparation and facilitation of a real estate transaction.

In most states around the country, real estate transactions are fairly easy to close (whether you’re closing the deal yourself or hiring a title company or escrow agency to handle it for you). However, there are a number of states (mostly on the east cost) that literally REQUIRE the involvement of an attorney to close any real estate transaction (regardless of the purchase price, property type or the parties involved).

For the average real estate investor, this isn’t a “problem” per se (after all…; who would know better about closing a deal than an attorney?), but if you’re involved specifically in the niche of land investing, this can present some issues.

When you’re pursuing vacant land properties the right way, there will be plenty of opportunities to purchase vacant lots for a VERY low price (we’re talking – less than a thousand dollars) and frankly when you’re required to enlist the help of an attorney (at well over $1,000 a pop), the cost can far outweigh the benefit, especially when the mechanics of the transaction just aren’t that complicated.

A State-by-State Guide

I’ve bought and sold land in a number of states over the years, and in the markets where I’ve worked – I’ve only encountered this obstacle on a handful of occasions.

Luckily, I was working on deals that were fairly large and complex, so the added cost of using an attorney wasn’t a show stopper for me (in fact, I was happy to pay a little extra and avoid the headache of closing these deals myself).

However, knowing that these areas would probably be cost-prohibitive on smaller deals, I definitely wouldn’t want to pursue these markets (i.e. – any of the states shaded in dark blue – below) if my sole focus was to snatch up the cheapest properties with a market value of less than $5,000 (because the attorney requirement in these states would most likely be a deal-killing obstacle with every “cheap” property I encountered).

So after years of being vaguely aware of the situation, I decided it was time to do the research, put in the legwork and create an interactive map (for you and me) with all my findings on which states DO and DON’T require an attorney to be involved in the closing of each transaction.

After cross-checking several sources and calling dozens of closing offices around the country, here’s what I came up with…;

Disclaimer:The map above is a representation of the information I was able to find and interpret through many hours of research. While I believe the information is fairly reliable (and I did include links within each state, so you can click to see at least one supporting source), I cannot guarantee its complete accuracy. Many states change their laws and statutes from year to year, so be sure to verify the information above before you get too far along in the closing process in your state. I am not an attorney and this information shouldn’t be interpreted as legal advice – this map simply represents the answers I was able to compile after doing an exhaustive online search and talking with several closing agents all over the U.S.

It’s worth noting that in the states where attorneys are required to close transactions, the severity of the issue varies based on how the law is written.

For example – some states (like South Carolina and Georgia) require that an attorney be active in the entire closing process, whereas other states (like Alabama and Illinois) require that an attorney be involved only in the preparation of documents (like deeds, financing instruments and other recordable items).

Apparently, some states have decided that the mere act of putting together a deed is synonymous with “practicing law” – and since every transfer of real estate involves the preparation of a deed, these deals cannot be finalized without the involvement of an attorney on some level.

When Is It Worth The Cost?

Is the problem severe enough for you to AVOID states altogether where this attorney requirement is an issue? It all depends on the profitability of the deals you’re pursuing.

When you’re buying a property for $500 – I would find it difficult to justify paying $1,000 (2x the amount of the purchase price) just for an attorney to do the exact same thing that I’m fully capable of doing myself.

In most states, I would have the option of closing without ANY professional assistance – but in the states where an attorney is required by law, this obviously isn’t an option.

On the same coin – if I’m buying a property that could easily net me $50,000 of profit (and if those are the ONLY properties I intend to purchase), then there is no need to disqualify these “attorney only” states from my pursuits. It’s much easier to justify paying an attorney to do the work when my profit margin can easily pay for it…; but when you’re looking at smaller deals and I’m literally not allowed to close my own deal because I’m not an attorney, this can be a problem (maybe even a big enough problem to avoid doing business in some states altogether).

Special Thanks

As I was doing the research for the map shown above – there were a few resources that were extremely helpful to me, so I wanted to give credit where credit is due:

  • Sandy Gadow has a very detailed state-by-state guide that was extremely helpful in cross checking the information above.
  • Amitree has an overview of the home buying process for all 50 states, which provided a good starting point indicating which states follow which process.
  • James Orlando, Legislative Analyst for the Connecticut General Assembly published a detailed overview back in 2009 discussing several states that require attorney involvement for closing real estate transactions.