My question has to do with the preparation of Texas Home Equity loan documentation. I know Texas has very specific law related to home equity loans (or HELOC) and this includes the closing must occur at a title agent, attorney or lender.

Question: Do the home equity loan documents have to be prepared by an attorney? I know there is a "practice of law" issue on first mortgage loan documenation, but I did not think that also related to home equity loan documentation.

We have purchased doc prep software from a national provider and we want to prepare our own HELOC and HEL products for closing.

Thanks!

We prepare our own from a doc prep software - I know of no requirement for attorney preparation.

Home equity lending has specific constitutional requirements; therefore, bank counsel should be consulted.

As far as completing the documents, there is no distinction in the law between first lien documents and second lien documents. Chapter 83 of the Government Code prohibits most persons from being compensated to prepare legal instruments affecting title to property. That would be any deed, deed of trust, mortgage, and transfer or release of lien. This would not include your note or any document that does not itself affect the title to property. Here is the Chapter in its entirety:

CHAPTER 83. CERTAIN UNAUTHORIZED PRACTICE OF LAW

§ 83.001. Prohibited Acts
(a) A person, other than a person described in Subsection (b), may not charge or receive, either directly or indirectly, any compensation for all or any part of the preparation of a legal instrument affecting title to real property, including a deed, deed of trust, note, mortgage, and transfer or release of lien.
(b) This section does not apply to:
(1) an attorney licensed in this state;
(2) a licensed real estate broker or salesman performing the acts of a real estate broker pursuant to The Real Estate License Act (Article 6573a, Vernon's Texas Civil Statutes); or
(3) a person performing acts relating to a transaction for the lease, sale, or transfer of any mineral or mining interest in real property.
(c) This section does not prevent a person from seeking reimbursement for costs incurred by the person to retain a licensed attorney to prepare an instrument.
Added by Acts 1989, 71st Leg., ch. 2, § 8.43(a), eff. Aug. 28, 1989. Amended by Acts 1989, 71st Leg., ch. 115, § 1, eff. Aug. 28, 1989.

§ 83.002. Expenses
This chapter does not prevent an attorney from paying secretarial, paralegal, or other ordinary and reasonable expenses necessarily and actually incurred by the attorney for the preparation of legal instruments.
Added by Acts 1989, 71st Leg., ch. 2, § 8.43(a), eff. Aug. 28, 1989.

§ 83.003. Forms
This chapter does not prevent a person from completing lease or rental forms that:
(1) have been prepared by an attorney licensed in this state and approved by the attorney for the particular kind of transaction involved; or
(2) have been prepared by the property owner or prepared by an attorney and required by the property owner.
Added by Acts 1989, 71st Leg., ch. 2, § 8.43(a), eff. Aug. 28, 1989.

§ 83.004. Cumulative Remedies
This chapter is not exclusive and does not limit or restrict the definition of the practice of law in the State Bar Act (Chapter 81). This chapter does not limit or restrict any remedy provided in the State Bar Act or any other law designed to eliminate the unauthorized practice of law by lay persons and lay agencies.
Added by Acts 1989, 71st Leg., ch. 2, § 8.43(a), eff. Aug. 28, 1989.

§ 83.005. Recovery
A person who pays a fee prohibited by this chapter may bring suit for and is entitled to:
(1) recovery of the fee paid;
(2) damages equal to three times the fee paid; and
(3) court costs and reasonable and necessary attorney's fees.
Added by Acts 1989, 71st Leg., ch. 2, § 8.43(a), eff. Aug. 28, 1989.

§ 83.006. Unauthorized Practice of Law
A violation of this chapter constitutes the unauthorized practice of law and may be enjoined by a court of competent jurisdiction.
Added by Acts 1989, 71st Leg., ch. 2, § 8.43(a), eff. Aug. 28, 1989.

-Z- Thanks for the info. For home equity programs, we use a national software package from a large vendor that has approved legal counsel in each state. We plug in the names, loan amount etc...(basic info) and the documents are prepared.

After doc prep, we have a title office or attorney handle the closing.

Do you see anyting wrong with this process?

Z - Just so I am clear on this, theoretically, a bank could use it's automated documentation preparation system to prepare the deed of trust, etc., as long as they did not specifically charge a documentation preparation fee - correct? The law just says you can't be compensated for preparation - it doesn't make preparation illegal - or am I all wet?. Would appreciate your thoughts - Thanks!

good clarifying question rlcarey! Thanks.

This quote is from O'Hara vs. North American Mortgage Company 150 SW 3d 181 Tex.App.-Tyler, 2002 (Jun 28, 2002):

Quote:

---

An evidentiary hearing was held in which the parties called witnesses and admitted documents into evidence. The undisputed evidence presented at the class certification hearing demonstrated that North American has a standard procedure through which it prepares loan documents. In connection with the O'Hara transaction, in October of 1994, North American approved a loan in the amount of $60,700 relating to the transfer of property through a general warranty deed. A non-attorney "loan closer" for North American then originated and documented the O'Hara loan using their computer system. Specifically, she input "variable information" into the program by responding to questions on her computer screen. In combination, those entries and the computer system created the O'Haras' deed of trust, note *183 and general warranty deed, as well as other non-title loan documents.

The ultimate issue in the underlying case is whether this standardized system for the preparation of loan documents, which requires the input of data into the computer by clerical staff, constitutes the unauthorized practice of law and violates Texas Government Code Section 83.001. Tex. Gov't Code Ann. § 83.001(a) (Vernon 1998). Section 83.001 states that, except for certain professionals, no person may "charge or receive, either directly or indirectly, any compensation for all or any part of the preparation of a legal instrument affecting title to real property, including a deed, deed of trust, note, mortgage, and transfer or release of lien." Id The statute provides that any sums charged or received in violation of this provision must be returned. Tex. Gov't Code Ann. § 83.005. It is undisputed that each borrower for which North American processes documents is charged a $125.00 "computer/clerical" fee.

---

All this decision did was certify the class for a class action. This certification was appealed to the Texas Supreme Court. The TX Supreme Court granted North American's petition for review and, without hearing oral argument, reversed the judgment of the court of appeals insofar as it orders class certification, and remanded the case to the trial court for further proceedings (this was procedural and had nothing to do with the merits of the case). That was in December. I do not know where this case is presently.

Obviously, the fact that the lender charged a fee for document preparation or, as they called it a computer/clerical fee, had a lot to do with the Plaintiffs bringing this case. Check your fees and make sure that there are no fees there that could be considered a fee for preparing the documents.

Talk to your document provider. If they have lawyers on staff who are licensed in Texas, they should be able to answer all of your questions and tell you the dos and don'ts of using their products.

Thanks Z - as always - helpful information and advice right on point