How the electronic era is changing the practice of real estate law

  • December 18, 2008
  • Conrad McCallum

A CLE session held at the Canadian Legal Conference in Quebec City last August addressed key challenges and opportunities. The presenters were Allan G. Silverstein, director of national legal engagements for Emergis; Michael A. G. Forcier, of Chaddah Forcier; and Karen Decker, senior counsel and vice-president of underwriting and legal, Stewart Title Guaranty Company. Here are some key trends that emerged from the speakers.

Increased competition

There’s no question that lawyers can continue to expect increased competition by other parties such as paralegals and third-party document processing companies, who are willing to embrace and develop new ways to use technology to reduce costs and speed up the closing process. The challenge for lawyers is to embrace efficiencies, while maintaining a high standard in the quality of service provided to clients, Decker says.

More sophisticated conveyancing platforms

Web-based title searching and registration and online title insurance ordering are two forms of technology that are influencing how real estate law is practised. But it’s conveyancing software platforms that have the most “revolutionary” potential, Decker contends.

Conveyancing platforms – examples are Do Process’s The Conveyancer® software (now owned by Teranet Enterprises Inc.), LawyerDoneDeal Corp.’s RealtiPLUSWeb®, and Stewart Title’s LegalSTEPS™ – are designed to increase efficiency, ensure consistency in documentation and allow for ever increasing volumes of transactions to flow through a law firm.

Lender connectivity

In some models, technology can be used to facilitate the removal of work from the law office; loss of refinancing work is a case in point. As Decker notes, a key challenge of the real estate bar, therefore, is to seek to influence both the software platform and the form of lender program that is associated with it.

Openness to efficiencies

Current lender platforms enable a lawyer or Quebec notary to receive mortgage instructions and to report electronically to the lender. Two examples are Emergis Inc.’s Assyst Real Estate and LawyerDoneDeal’s Virtual Intermediary Program. What is missing from lender connectivity is the ability to transfer funds electronically. But change appears to be just around the corner. Teranet Inc. has introduced a service in Ontario called “Closure” that allows for transfer of funds between lenders and lawyers and between lawyers.

Faster turnaround times

The Assyst Real Estate platform’s key features include the ability to submit preliminary reports and request for funds online, online tracking of file status and a “freeze” on final mortgage terms 48 hours before closing.

Silverstein contends that such a platform benefits the real estate lawyer in several important ways. It equips them to handle quick closings and rushed deals, allows them to report electronically within minutes of closing, and makes it easier to compete effectively with title insurers and to recoup some of the refinancing business.

The race to create centralized “hubs”

There has already been integration between conveyancing platforms and various third parties, such as title insurers and online registration systems. The Conveyancer software, for example, is connected to title insurers’ electronic ordering platforms, in addition to the Teraview online searching platform.

“This is the first stage of the convergence that, in the future, will lead to creation of a form of hub whereby the various interconnected parties to a transaction can interact electronically through a single seamless platform, rather than through multiple distinct platforms,” Decker writes in a paper presented at the CLE. “The key feature is online software that allows for the sharing amongst various stakeholders to a transaction of information in real time.”

More focus on what lawyers want

Technology companies need to remember that the lawyer is the central figure in the real estate process, interacting with the various parties—the realtor, mortgage broker, lender and home buyer, Decker observes. As such, lawyers and notaries should express their views on the programs and technologies being offered, supporting those “that seek to enhance the conveyancing process without reducing the role of the lawyer and notary.”

Better handling of the issue of costs

The successful technology will manage the cost of the platform, so that the borrower or purchaser knows up front what the costs will be and the lawyer is not obliged to collect this cost through legal fees.

“Ultimately, if lawyers aren’t willing to use the technology, then it’s unlikely to be successful, and they may have concerns about using a platform where they see it as increasing their costs and not getting the benefit,” Decker says.

Umbrella marketing

Can a new real estate model be created to provide the lawyer with a more significant role in the real estate transaction? That was Michael Forcier’s goal when, in 2003, he launched Lawyers Web Property Shop Limited, a virtual real estate office where individuals sell their own real estate with a lawyer providing background legal work and advice.

Based partly on the “for-sale-by-owner” model and partly on the solicitor-operated property shop model that has thrived in Scotland, Lawyers Property Shop Ltd. provides branding for small firms and sole practitioners and the opportunity to advertise on a co-operative basis, while boosting the lawyer’s role in the real estate deal. The company is currently in partnership with 38 lawyers across Ontario. “The lawyers handle the transaction from the initial retainer through the offer to purchase, to closing,” Forcier notes in a paper. “You make sure your clients are fully advised from the beginning; you don't step in at the end to clean up errors or omissions in the paperwork.”

Better guidance to the profession

Law societies are providing better guidance to the profession today on retaining documents in electronic form, but Silverstein argues that the wording remains “generalized.” A number of law societies now recognize the option of scanning files and converting them to an electronic format, as an alternative to storing them in paper – with conditions and restrictions (see, for example, the commentaries on file retention published by the law societies in Ontario, British Columbia and Alberta. For specific guidance on record retention, real estate lawyers must look to documents such the Law Society of Upper Canada’s Practice Guidelines for Electronic Registration of Title Documents

Greater clarity on format

The approach of the law societies has been to provide consideration of what should be retained, and for what period of time, without mandating the format (paper or electronic). But new “know your client” rules, enacted by the law societies as part of the fight against money laundering, provide some guidance on format, Silverstein points out. Those rules are based on the Model Rule developed by the Federation of Law Societies. In addition to addressing how long information and documents are to be retained, the Model Rule states that documents may be kept “in a machine-readable or electronic form, if a paper copy can be readily produced from it.”

Recognition of the need for certifying authorities

When a document is signed electronically, parties need to have absolute confidence in the identity and credentials of the person making the signature. But regulators have established Certifying Authorities (CAs) for lawyers in only two provinces to date—Quebec and British Columbia. “In Ontario, we have Teranet, and they have designed their own certification authority, because there was nobody else to do it,” Silverstein says. “It helps with the data flow and the preparation of documents, so lawyers have gravitated to it, despite its limitations, because it helps make everybody more efficient.”

Silverstein says he’s hopeful the law societies will look again at establishing CAs, as they contemplated in 2000. “The law societies weren’t ready then; their infrastructures weren’t ready. Maybe now they will see the value to it; and so I think there’s huge potential for this down the road.”

The “paper” mindset is changing – slowly

Silverstein believes the biggest impediment to the widespread use of automated mortgage transactions is psychological. Lawyers and lenders must recognize that in a mortgage transaction, the content of a lawyer’s report and opinion is the message, and paper is only a method of delivering that message. “No amount of paper accompanying a final report can supersede a lawyer’s opinion about the validity and enforceability of a registered mortgage,” Silverstein writes.

A higher profile for successful electronic processes

As more areas of real estate automate gradually, others are blazing a path in that direction. On December 4, at the first annual Residential Real Estate conference jointly held by the Continuing Legal Education Society of British Columbia and the Canadian Bar Association’s B.C. Branch, the Land Title and Survey Authority of British Columbia announced a landmark milestone – the one millionth land title application processed by its Electronic Filing System (EFS).

Proponents of technological change say such processes have resulted in greater security, ease of use, lowered costs and faster service in the context of land title applications. And they expect similar advantages to occur as other real estate processes become automated, including the instructing, funding and reporting of mortgage transactions.