It’s 8:05 a.m. Your coffee cup is full. A client has asked you, a prominent real estate attorney with a number of years of experience, to draft a lease/easement/offer. What is your next step? Do you call in your second year associate, explain the terms the client wants, have the associate make a first draft, and then review and revise it? Do you dig through your drawer of prior documents, find one that is similar to this deal, and use it as a base to draft it yourself at your higher billing rate, or do you fill in the blanks of an existing pre-printed form provided by your state bar? In each case, you must find a way to get the information in your head onto paper, both for the best terms you know the client needs based on your experience and for the specific facts of this particular deal.
But wait. Is this scene happening in 2017 or in 1990? Hard to tell, because, despite the tremendous advances in computing, automation, and artificial intelligence in other areas of business and in other areas of law, very little technology has been introduced in the market to assist the real estate attorney. This will not be true for long, however, and real estate attorneys need to be ready to accept and welcome the products that will allow us to serve our clients better, control costs in our firms, and buy us more freedom from the time-consuming steps that are making our business days encroach more and more into our outside lives.
The Press of Automation
No words need be wasted explaining how computerization has changed forever the way we do business in general. It is clear just looking at the way in which some travel agent functions have been replaced by Orbitz, Kayak, and similar web sites, or the way UPS and Fed Ex allow you to label, schedule a pickup, track, and secure evidence of delivery of packages, and of course the way Amazon and other on-line retailers not only allow you to browse, buy, and ship products but are now also anticipating what you will want to buy and when and shipping those products to a distribution center near you. In each case, the old way of doing business was replaced, not because the old service was not valuable, but because, as computer capacity grew, certain steps in the process could be done as well, more reliably, and at a lower cost than if completed by a human being.
So, as with any disruptive technology, it is important to break down the steps a valuable real estate attorney takes to complete a task and ask whether there are tools to allow that step to be completed faster, better, or more dependably, in another way.
The Valuable Real Estate Attorney
A good real estate attorney listens to a client’s description of the client’s goals, evaluates how best to accomplish those goals inside the framework of the attorney’s state real estate statutes, court interpretations of common law, local and federal regulations of the issue, and the attorney’s knowledge of the client’s current business and future business plans. The attorney must take into consideration how a title company will insure title in that transaction, what environmental, regulatory, survey, and physical inspection steps need to be accomplished to understand and protect against risks, and what governmental permits are needed for the deal to proceed. If the deal will involve financing, the information is further put through a filter of knowledge of how banks and other lenders underwrite loans. If the deal requires rezoning, annexation, or local permits, the attorney must evaluate how these steps can best be accomplished, and the attorney must use knowledge of the local political climate and personalities to create a strategy for success. This part of an attorney’s work will never be replaced by a machine; it requires too much knowledge, some of which is so local and personal that there would never be a financial incentive for anyone to create a computerized system to accomplish the same goals. To make a transportation analogy, the attorney will always provide the “last mile” of service to the client.
There is a second part of what we do, however, which is drafting the documents to carry out this plan, that is highly susceptible to being replaced by automated tools. Any over-busy, understaffed real estate attorney will tell you that it is this second part of the job that often becomes the second shift, accomplished after the phones stop ringing and the e-mails stop arriving, that makes our work lives intrude into our private lives. Frankly, not having proper tools for drafting is keeping us from providing the best service to our clients.
What Tools Are Needed?
What tools would we need to assist us in drafting? There really are four kinds of drafting we do. First, we have simple facts regarding a transaction that need to be repeated in many documents, like the address of the property, legal description, tax key number, and purchase price. Inserting this information into a document requires simple, “fill in the blank” technology, which has been available for years in a “mail merge” or “search and replace” document system, but someone still needs to set up the documents for the information to be used in Word documents, title company master forms, electronically generated Adobe or transfer return documents, and proprietary documents of broker licensing authority from our state bars.
Second, we need tools related to communicating with clients, from the engagement letter to the title objection letter, to the escrow closing letter, to the letter sending the closing book. Third, we need project management software that will enable everyone on the team to understand the deadlines in an offer to purchase, who has the responsibility for the next step, and when that step must be accomplished. Lastly, we need automation that incorporates logical decisions, some as simple as deciding which title company’s closing affidavits are needed and some as complicated as understanding the changes needed to a lease depending on whether it is a ground lease, a single tenant building, or for space in a shopping center or office building.
Changing Financial Model of the Practice of Law
Before addressing what tools do exist and what are needed, let’s look at the financial model of the practice of law, how it is changing, and how those changes affect the solution to this problem.
Each market has different billing rates, but the cost ratio of an experienced partner at a higher billing rate to the younger associate who knows enough real estate to be helpful is a principle that applies everywhere. To simplify the example, I will presume that, after a 15-minute conversation with a client about what the client wants in an easement, an experienced attorney would take about 15 minutes to find a sample easement document the attorney feels is similar enough to be a good base for starting a draft, 15 minutes to look up the address, legal description, entity name, signing authority, and so on, to complete the draft, and an hour to draft an easement, before the attorney would be ready to send the draft to the client. Adding it together, that means that an experienced attorney doing the drafting alone would spend 1.5 hours from the point of receiving the client’s instructions to the point of sending the draft. In fact, because of the press of business on the attorney’s desk from other drafting, there likely would be a gap of several days before the attorney could find the time to start the drafting work. The attorney might employ a secretary or administrative assistant to find the client’s file and pull up some of that factual information, and although that assistant’s time is generally not billed to the client, thereby keeping the bill lower, it still represents overhead that ultimately reduces the net revenue received by the attorney’s firm.
If the attorney ends the call from the client and pulls in an associate, spends 15 minutes explaining the facts of the matter, suggests the sample easement to start from, directs the associate to a file that contains the legal description and party names, and then takes the easement drafted by the associate in an hour, meets with the associate for 10 minutes of download, reviews the draft, proofs the facts, and sends the easement back to the client, the partner is still spending perhaps 20 more minutes of the partner’s time alone, before the client receives the draft back. The cost between those two touchpoints with the client equals 20 minutes at the higher billing rate, plus an hour at the associate’s rate, and 15 plus 10 minutes of double billing. Longer, more complicated or more fact-intensive documents will allow more work to be accomplished at the lower associate rate, but will likely also require more double billing of the time needed for the facts to be shared in the initial instruction meeting and in the download meeting. If associates are busy, it may take several days for the associate to be able to start on the drafting work. Having a paralegal prepare the initial draft results in the use of a similar amount of time, but at a lower billing rate, although it might require the partner to spend more time instructing, given the paralegal’s lower experience level. This example also presumes that the partner had all the needed facts for the document and that the associate was experienced enough to draft the document correctly. If either of these presumptions is not true, and the associate needs to call the partner or the client to secure missing facts, or the partner needs to substantially correct or rewrite the document, the bill can increase in a hurry, and write-offs may ensue. No matter what system is used, it still takes time to find the “right” sample document and to get the facts from the head of the person who received that information from the client onto paper; that is the time that automation can curtail.
I also must mention at this juncture the changes in cost in the real estate associates’ and paralegals’ financial models. The Cravath law firm was reported to have increased starting salaries of first year associates in the 2016 hiring year to $180,000, plus benefits and overhead. Although not every firm is following this number exactly, at least 16 major national firms in major cities have announced that they are matching that number, and Above the Law, a popular legal blog, reports that these firms are increasing the salaries of older associates in their firms, up to $315,000 for associates who are eight years out, plus bonuses. Anecdotally, experienced paralegals are also in hot demand, with headhunters hurrying to move them from one firm to another with promises of increased base salaries.
In light of these salary increases, it must follow that billing rates of top associates must increase substantially, along with their billable hour requirements, for their firms to break even. At those elevated rates, many experienced partners and contract partners in mid-sized firms are likely better able to accomplish the project with less instruction. It is a rare firm that has enough entry level real estate work that can be billed at these new high rates. This does not bode well for the ability of those young attorneys to receive the training needed for them to accomplish bigger and more complicated deals, while still earning their keep of salary, overhead, and benefits.
A first-year associate, however, is not likely to have the skill or experience to draft our hypothetical easement without the investment of a substantial amount of training, or the requirement that the assigning attorney spend so much time explaining or finding a similar example, that the amount of time saved in assigning the project is minimal.
We also must address the issue of scarcity. Real estate law has a boom and bust cycle, and very few young associates were hired in the 2006 to 2013 period into real estate departments, when development activity was low and many older experienced real estate partners and contract partners were themselves struggling to keep busy and to meet their firms’ requirements for hours and receipts. Therefore, it stands to reason, few fourth-year-plus associates have the experience and training to handle medium- to large-sized real estate deals on their own, and the few who do are highly sought after by headhunters and firms desperate to find help for their partners’ suddenly booming books of business and to replace retiring partners. In addition, firms should be wary of taking on large numbers of expensive associates at these high compensation levels who are narrowly trained in only one area for fear that this overhead will carry over into the inevitable next recession. A recent Altman Weil, Inc., study disclosed that 52% of firms surveyed reported that their equity partners are not sufficiently busy, and 62% reported their nonequity partners were not completely occupied. Altman Weil, Inc., 2016 Law Firms in Transition 3 (2016), available at www.altmanweil.com/dir_docs/resource/9eead77f-0f2a-471a-b400-c6ddec0af265_document.pdf. Similarly, the market for experienced real estate paralegals, who can partner with experienced attorneys and make them more productive, is very tight, with firms and headhunters fighting over candidates with little direct experience or with experience in the one area of real estate law that is currently waning, foreclosure and bankruptcy.
The financial model, the scarcity model, and the changing expectations of clients to want “fast, cheap, and good” real estate services, all point to the inevitable automation of those parts of the drafting process that should now be trusted to better computer systems.
Tools Available to Non-Attorneys in the Real Estate Market
So what automation tools are available in the real estate industry? For real estate brokers and property managers, there are many; for real estate lawyers, surprisingly few. (The mention of any individual software in this article is not intended to be a criticism or endorsement of any such software, but just a brief explanation of what products currently exist.)
The value a residential real estate broker used to bring to the marketplace was the knowledge of what homes were for sale, the access to factual information about each house, the negotiating of the purchase contract, and the completion of the closing. Their power was in their exclusive access to that information and the requirement that you had to sign with a broker and pay a commission to have access to that information. Now, web sites like Zillow obliterate the gatekeeper to that information, providing free and open access to what is for sale, pictures to replace the initial tour of the home, and companion public information such as the current tax assessment. It also provides relevant information a buyer may not have had through a residential broker, such as the trend of sale prices in that neighborhood, an estimate (or “Zestimate”) of what that house should be selling for, and immediate calculation of a local mortgage lender’s likely payment terms. Rather than eliminating the need for residential real estate brokers, it saved those brokers time by explaining the facts of a house to an unqualified buyer, eliminating many unproductive showings and open houses, and helping a broker explain to recalcitrant homeowners why their expected listing price would be seen by buyers as too high for the market.
Title Insurance Companies
Title insurance companies can search the local real estate records from the comfort of their own offices by subscribing to services like Tapestry and Laredo, which reproduce all of the documents recorded daily in the local register’s office and scan them on-line along with an electronic posting mechanism. Companies like Simplifile allow, for a subscription fee, the ability to record documents in almost every county from your home office.
Surveyors no longer carry around chains and lengths of rods to measure the outlines of properties. GIS corners are laid on many properties, and satellite services can define the outline of a property. Google Earth and Google Maps have become invaluable services to see, in an instant, how a property relates to surrounding roads, parcels, and physical features, and even to determine, although roughly, what improvements are on the land.
Many municipalities subscribe to a service that puts meeting dates and agendas, minutes, municipal codes, procedures, filing fees, and sample application forms for many types of requested municipal actions on-line. An attorney can quickly, easily, and anonymously, in many places, look up the ownership and tax status of a parcel, code violations, permit applications and status, and the mapping of zoning districts and other services.
State statutes related to real estate, administrative regulations, and case law annotations are regularly available on-line, usually more quickly than a supplement to a guidebook could be prepared and distributed.
Residential Real Estate Forms
In many states, the state bar association and the body regulating real estate brokers have jointly promulgated standard residential real estate documents like Offers, Addenda, Amendments, Counteroffers, and some Closing Documents. Designed to prevent real estate brokers from “practicing law without a license,” these forms allow brokers to fill in the factual information about a transaction but require all insertions and deletions to be obvious (such as by being shown as strikethroughs) in order to “protect” the consumer with language deemed fair to the parties. These forms are usually mandated for use by brokers but in many states are also voluntarily used by attorneys because of their inclusion of needed terms and their wide acceptance in the community. In Wisconsin, for example, even attorneys who are not required to use the forms do so and attach riders for the exceptional language they need for a particular deal.
Over the years, these standard forms have progressed from paper forms that needed insertions to be handwritten or typed in, complete with carbon paper, to a subscription-based system that could be completed on the computer but could only be changed by someone who also had a subscription, to “cloud-based” forms that can be completed and revised on-line. Because of the differences among laws and customs from state to state, these forms are usually promulgated by the local state bar and broker-licensing entities, although using the underlying software of companies like Ziplogic, which have partnered with these licensing agencies for at least the last ten years.
State Banker’s Forms
Similar to the real estate brokers’ forms, some states’ bankers associations promulgated “standard” lending forms, ranging from Notes and Mortgages to loan documents for personal property, security interests, and other UCC collateral, starting with paper forms to be completed by typewriter, then with carbon paper, then on-line, and now fillable forms. Technically, any changes to the forms themselves, departing from the master forms, should require removal of the bankers association logo and designation, lest a recipient think they are receiving the standard forms, which in fact have been altered. No mechanism stops a user from adding or removing language that could be mistaken for standard.
Many new iPhone apps and web-based services have been created to assist residential real estate brokers, who operate essentially as independent contractors. The apps range from safety services (CurbCall Protect, which notifies the home office if the broker does not check in within a prescribed time after an open house), virtual staging apps (www.virtualstagingsolutions.com, to add virtual furniture or decorating to listing photos), and business management software (ZipTMS, which tracks and manages all activities from listing to closing).
Tools Available to Non-Real Estate Attorneys
Automation and computer-aided assistance, even artificial intelligence programming, have found their way into legal practice but not into real estate practice.
Filing an application for a trademark with the U.S. Patent and Trademark Office was a staple of trademark attorneys throughout the country for years. Now the USPTO has initiated an on-line system, called TEAS (Trademark Electronic Application System), which requires the applicant to fill in the blanks directly on-line with that office. The on-line system assures that no mistakes can occur in the application because the fill-in form will not allow completion other than correctly, eliminates duplicate entry of facts because the information completed by the applicant is fed directly into the recipient computer, and eliminates many steps in the dictating, typing, printing, copying, mailing, and scanning or filing of the same information using the old method.
Purchases and Sales of Businesses
The Practical Law Company was an early entry into automating business transactions, particularly in the field of mergers and acquisitions. Especially in the area of purchases and sales of businesses, the company created a suite of services including detailed sophisticated master forms that not only satisfied the fill-in-the-blank (FITB) parts of drafting but also provided related content such as:
- sophisticated logic trees for choosing alternative provisions depending on choices made early in the drafting process;
- extensive annotations to explain, even to an inexperienced drafter, the reasons to choose one alternative phrase over another (such as one for a seller, one for a buyer);
- the results of current case law outcomes; and
- market information from all its subscribers, explaining that, out of all of its users, buyers used one provision over another X% of the time to establish “What’s Market.”
The service is paid for by annual subscription. PLC has expanded into libraries for antitrust, bankruptcy, labor and employment, and trade secret law. Relatively recently it started to populate a real estate library that has sections for residential leasing, commercial leasing, construction, and finance, but state-specific forms are too narrow for a national company like this to create an entire suite of documents for each state. Bloomberg Law has a BNA product it advertises as a “database of expert knowledge.”
Many highly touted automation advances in the legal field are services related to litigation. Perhaps because digging through discovery and other due diligence work is both time-consuming and therefore expensive, and often so voluminous that it defies easy summary into a useful system, most of these services have been in litigation. Summation, for example, is web-based software that purports to “ingest” litigation data (including pictures and drawings), perform early case assessment, organize the case, manage transcript and search, and organize data in a way to make it easily digestible. CaseLogistix advertises that it can do the same but also can review and summarize documents in other languages. Each product uses algorithms and assumptions that require the user to understand the systems well enough to ask the right questions to produce the right answers.
Of course, legal research for litigation has a long history, principally with Westlaw and Lexis, some using “English language” searching, some with “headnote” searching, trying to get closer to accurate concept searching. If the software is the function, and the data are reported case law, there is a match of financial incentive to allow searching of each state’s differences in law, down to the minutest detail. Newer research software, such as Ravel Law, balances this pure search with a weighting of which cases are more significant or more often cited as precedent. Traditional legal research software has been funded by subscription, based on time spent searching and the cost of printing cases. Some newer software, like Casetext, provides free searching with annotations by attorneys and academics.
Perhaps no area of law has succeeded in automating its document drafting work as successfully as estate planning, although using old tools. As identified in a recent ABA report, there are a variety of software systems for estate planning documents. ABA Center for Prof’l Dev., Document Assembly for Lawyers: Using Templates and Software That Can Draft Documents for You (2016), available at www.americanbar.org/content/dam/aba/multimedia/cle/materials/2016/08/ce1608lpi.authcheckdam.pdf. Some of these systems are subscription services that take data from the estate planning attorney and insert it into the provider’s proprietary software. Others use very simple fill-in-the-blank software. Many, however, are based on a HotDocs foundation, software that has been available for many years.
HotDocs, after creating the essential templates, not only performs the FITB function to make sure the settlor’s name, address, spouse and children’s names, and addresses are correctly listed and spelled over a variety of smaller but important documents like the Financial Power of Attorney and Health Care Power of Attorney, but the software can also integrate logic tree functions, primarily for the Living Trust document. The software creates an “Interview,” in which the client is asked a series of questions about the client’s particular family and testamentary wishes, the answers to which are then used to produce the full set of estate planning documents. If the lawyer offers one hour of free consultation to clients about their wishes and feeds this information into the computer by completing the “Interview” as the clients talk during that consultation, it is possible for the lawyer to print out the clients’ entire estate plan set of documents before they reach their car in the parking lot. Because much estate planning work is currently done on a fixed fee model, this may have provided the incentive for these attorneys to seek out a system that eliminated any unnecessary steps in feeding the clients’ wishes into a finished document.
The resulting Word document can be saved to a document management system and then revised or updated like any other Word document, but with much of the work already completed. In addition, the FITB function eliminates the need for much document proofing and allows for easy supervision of work completed by junior associates or paralegals, allowing the experienced attorney to focus on just the strategy for that client.
Bankruptcy and Artificial Intelligence
For many years, lawyers have had the ability to search the entire federal court system, including bankruptcy courts, using an automated subscription system called PACER, which could find a bankruptcy filing in any federal bankruptcy court. But drafting documents remained manual. Now, however, companies like ROSS Intelligence are expanding electronic searching to bankruptcy cases using artificial intelligence (AI) as the first step for these companies to gain a foothold in the legal market.
Many articles have appeared recently in legal journals and trade publications about the coming intrusion of artificial intelligence into the practice of law, usually characterized as “man vs. machine,” or warning of the coming extinction of all lawyers with liberal quoting of Shakespeare. ROSS Intelligence is a company developing an AI system originated by a team at the University of Toronto, working with the IBM supercomputer dubbed “Watson,” to find new business applications for using natural language processing to answer questions after searching large amounts of data. The goal of the team is to use ROSS to perform the mundane task of sorting through large amounts of legal data to arrive at a conclusion in the same way that a good attorney applies the client’s facts to laws and precedent to arrive at a probable outcome. ROSS is initially being used for legal research, primarily in the bankruptcy area, but applications for brief research and writing are being tested.
Another program, Legal Analytics by Lex Machina, mines litigation data for clues about how a judge is likely to rule on a case based on prior decisions. Westlaw also has been integrating AI functions into its searches. Lexis is working on AI that incorporates more natural language. ROSS Intelligence has plans to expand its suite of areas of research as the demand arises, including to researching and writing legal memos based on a simple question of law. Other AI firms are developing contract analysis tools, breaking contracts down into component parts and then comparing them. None of them have as yet announced a real estate library.
So Where Are All the Tools to Help Real Estate Attorneys?
But back to the original question. All of us would like to think that we are so special, and so skilled, that only we can perform the work we do. That may be true of some but not for all of the parts of the work we do. As outlined above, the client’s increased expectations for speed and efficiency of our services, and the financial model of providing many of the less-sophisticated documents with expensive associates may no longer be viable. The opportunity for an experienced real estate attorney, empowered with sophisticated real estate software systems, to provide strong, accurate, and immediate documents to supplement a consultation practice may be the only practice of the future. Put bluntly, sophisticated clients may no longer be willing to pay partner rates, or even expensive associate overhead rates, for the drafting side of our practice, so we had better find, or encourage the development of, good software tools for our practices.
Three Levels of Needed Tools
I believe that three levels of tools are needed immediately to modernize real estate practice.
The first level is simply to provide the FITB services, so that a client’s name, address, property name, signature block, and of course those long complicated legal descriptions never have to be filled in by hand on any document or proofed again. A HotDocs “interview” system, or similar software, is needed to permit lawyers to enter information into the system as early as the first call and not require duplication by humans during the transaction. Optimally, it could be seamlessly used for the firm conflict software, for the engagement letter, and for all standard documents, both for the transaction and for administrative purposes. This goal should be easy to achieve but would require fact-sharing seamlessly over several firm systems.
What a pleasure it would be never to have to proof a metes-and-bounds legal description again or to have a client angry because his name was misspelled. A program that could take an Adobe copy of the last deed of record, compare the legal description to the new title commitment, and print it on a new deed draft, with the ability to translate the word “degree” for the symbol for degree or to read the description no matter which starting point is used, would save a significant amount of time. With the proper coding and connection to the right printers, this process could be paid for by lessening or eliminating the need for secretarial help and the accompanying overhead.
The second level needed is a “logic tree” based software system that prompts the client interview to make logical choices in choosing documents from a library or choosing paragraphs inside a document. The overlap between a ground lease, a single-user industrial building, and a lease for a suite in an office building or shopping mall is great and certainly the variability of terms among these disparate leases is no greater than the variables in a living trust. But creating such a master lease would require a heavy investment of time for any one individual lawyer or firm.
The third level of service would require a significant investment in software to allow a document being drafted to automatically reach out to existing public sources on the Internet to check information as the document was being drafted. The completed address blank and completed tax key number blank in the interview, for example, could be checked automatically against the municipality’s public record for that address and key number, to routinely pull up and save a copy of the last tax bill, to retrieve any notices of reassessment and payoff amounts for delinquent taxes, while alerting the drafter if the public record showed any discrepancies between the submitted information from the interview and the public record. Checking a box in the interview indicating that the proposed use was for development could automatically send an inquiry to the city’s web site for a confirmation of the existing zoning and the list of permitted uses in that zoning district, and, if the proposed use was different, could pull up the form for requesting rezoning, the procedure, and the city’s calendar and agenda deadlines.
More advanced use of artificial intelligence, when computers talk to computers directly without the intervention of humans to resolve issues, may not come for some time. An example was given by ROSS Intelligence of a computer that knows the last day of a lease term, the number of days before termination when a tenant must decide to elect the extension option or not, and produces an automatic notice to the tenant’s business person to make that election, including drafting and sending the election back to the landlord. This type of computer-to-computer conversation may be a bit too frightening for attorneys who worry about the legal ramifications of missing a deadline or notice, but a large national landlord with hundreds of notices to send out each month may weigh that cost and risk differently.
Part of the reason that so few real estate automation tools exist may be that real estate law is based on state, not national law, and therefore, it is hard for a software supplier to tailor 50 different master documents to each state’s laws. As the underlying documents become more standardized, however, there should be less reason for state-to-state changes. Certainly suppliers like LegalZoom have found a way to overcome state-to-state variances in corporate formation laws.
A great deal of real estate work is performed on an hourly basis. To create and pay for the software to enable a real estate attorney to become more efficient, that attorney will likely need to change to a system of fixed fees for certain portions of the work and will need to reflect in its engagement letter that a “document fee” of some type will be charged, so the cost of creating and applying these standard forms will be effectively amortized over many projects. To justify this change, attorneys will need to study the costs of each part of their practice and determine which alternative gives the client the best combination of cost, efficiency, and thoroughness. Many states are now requiring attorneys to take a class in technology, as part of the state’s continuing legal education requirement, to bring attorneys current with the capabilities of technology, principally e-discovery.
If the software industry listens to the needs of real estate attorneys, a day could soon arrive when an experienced attorney, coupled with robust software, can produce documents faster, better, and cheaper than the partner and associate or partner and paralegal models, without a secretary and without the overlap of time needed to relate information to and from parts of the team. Before that date, this industry certainly could use even smaller and narrower software applications to shorten our days and eliminate mistakes.