Document Prep not Practice of Law

Michigan Supreme Court, Dressel v. Ameribank, 2003

October 1, 2003

Michigan’s highest court has ruled that simply filling in the blanks in preprinted documents without counseling a consumer “in matters that require the use of legal discretion and profound legal knowledge” doesn’t constitute the unauthorized practice of law.

Two homeowners obtained a mortgage from Ameribank. The lender charged the couple a fee “to cover the costs of preparing the legal papers.” The homeowners sued, alleging that the fee was derived from the bank’s unauthorized practice of law.

The Michigan Supreme Court stated that because the lender’s employees didn’t draft the mortgage forms—they just completed forms drafted by the federal government—they didn’t engage in the unauthorized practice of law. Nor did the employees provide any analysis of legal wordings, which would’ve constituted the use of legal discretion. The court also found that charging a fee to prepare the documents didn’t create an unauthorized practice of law situation.

Although the defendant in this case was a lender, the ruling would probably apply equally to practitioners who fill in the blanks in preprinted purchase contracts for buyers and sellers, according to NAR Legal Affairs.

Broker damages not limited

California Court of Appeals, 2nd Division, Fragale v. Faulkner, 2003

A broker was holding an open house at his listing when a couple who were interested in the house approached him. The couple eventually signed a buyer’s agreement with the broker and bought the home.

Then they received a property disclosure form from the seller stating that the laundry room, bonus room, and master bedroom closet had been added to the house without building permits. The buyers contended that when they expressed concerns about the lack of permits, the broker assured them that the disclosure didn’t necessarily indicate any defect and that the seller had assured him that the bonus room paneling didn’t conceal any defects. A home inspector found no major defects.

After the buyers moved in, they found numerous structural defects, as well as faults in the paneled walls. They sued and were awarded damages by the jury, which entered a verdict against the broker for misrepresentation. However, the trial court overruled the jury, finding that the buyers had failed to provide expert testimony to prove that the property had diminished in value because of the defects.

The buyers appealed, and the California Court of Appeals reinstated the verdict in the buyers’ favor. The court found that California law would’ve let the buyers recover damages from the seller only for “out-of-pocket” damages, the difference between what the buyers paid and what they actually received.

However, the court decided that because the buyers had an agency relationship with the broker, they were entitled to recover “benefit-of-the-bargain” damages from him of $19,000—the amount needed to bring the property up to the condition the sellers had originally described.

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