UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 03-07
Facts
Law Firm is requested by a local real estate company to represent its customers in real estate closings. (It is assumed that real estate company is complying with S.C. Code Ann. § 37-10-102 with respect to honoring the borrower’s decision concerning attorney preference.) Real estate company, not Law Firm, will issue the title insurance, with Law Firm assisting in “searching and certifying the title.” Law Firm will be paid 20 percent of the insurance premium for its share of the title work in addition “to the amount we will charge the client for our closing services and the title search.”
Question
Does the foregoing proposed agreement violate any of the Rules of Professional Conduct, particularly Rule 5.4?
Summary
Rule 5.4 is not violated by the foregoing proposed agreement. The foregoing agreement is ethical provided there is proper supervision of title matters by the law firm, no excessive compensation to the law firm in violation of Rule 1.5, and appropriate disclosure to both the local real estate company and the client-customers under Rules 1.4, 1.7, 1.8(f) and 2.2.
Discussion
The real estate closing company is entitled to make money for issuing a title policy assuming the company is qualified, properly licensed, and behaving properly under Doe v. McMaster, 355 S.C. 306, 585 S.E.2d 773 (2003) (title company’s search and preparation of title documents for the lender must be directly supervised by a lawyer). The law firm is entitled to be paid reasonable compensation for title agent-related work it does concerning the issuance of title coverage.
By no means, however, is the law firm entitled to double bill for the same work. The law firm is not entitled to use its ability to share in the insurance premium as a means of receiving extra compensation for title search work already being paid for by its client-customer. Rule 1.5(a) requires that fees be reasonable. If the client customer is made to pay for Law Firm “title search work” for which the firm has already been paid by the real estate company, the compensation would be excessive. Additionally, Rule 1.4 requires that the client be given full disclosure concerning the lawyer’s financial involvement in the real estate transaction.
The client’s interests need to be protected. The terms concerning the title insurance available through the local real estate company must be fair. Those terms may not be less advantageous to the client-customer than they would be were the law firm issuing the policy. There is nothing per se wrong with the firm being paid by the real estate company a percentage of the premium for legal work done. Full disclosure is required as well. The propriety of the proposed arrangement also presumes that the client-customer is informed of his or her right to obtain title coverage elsewhere and that the payment to Law Firm is reasonable, fully and properly disclosed to the client-customer and does not involve the client-customer paying (or the law firm receiving) double compensation for the same work.
In McNair v. Rainsford, 330 S.C. 332, 345, 499 S.E.2d 488, 495 (Ct. App. 1998), a case involving alleged conflicts of interest in the handling of a real estate transaction, the Court of Appeals relied on Ethics Advisory Opinion No. 94 08 for the proposition that:
an attorney may represent all three parties [buyer, seller and lender] to a real estate closing without violation of the RPC provided, however, no negotiation is required, no problem has arisen which may jeopardize the closing, no party is relying on the attorney for substantive advice about how or whether to proceed, there has been full disclosure of the potential for conflict to all the parties to the closing, all of the parties understand their right to seek other legal counsel, and all parties agree. Additionally, the attorney must reasonably believe the representation will not adversely affect any part of the closing.
In Rainsford, the Court of Appeals went on to discuss the possible applicability of Rule 2.2 in the real estate closing context:
A lawyer acts as intermediary under Rule 2.2 when the lawyer represents two or more parties with potentially conflicting interests. Rule 2.2 cmt. at p. 163, Rule 407, SCACR. A key factor in defining the relationship is whether the parties share responsibility for the lawyer's fee, but the common representation may be inferred from other circumstances. Id. Because confusion can arise as to the lawyer's role where each party is not separately represented, it is important the lawyer make clear the relationship. Id. Rainsford, 330 S.C. at 347, 499 S.E.2d at 496.
In light of Rainsford, the disclosure requirements of Rules 1.4 and 1.7, and the potential applicability of Rule 2.2, it is imperative that any closing attorney faced with the subject fact situation charge only a reasonable fee that is fully disclosed to all concerned. Rule 1.8(f) also requires full disclosure:
A lawyer shall not accept compensation for representing a client from one other than the client unless:
(1) The client consents after consultation;
(2) There is no interference with the lawyer's independence of professional judgment or with the lawyer client relationship; and
(3) Information relating to representation of a client is protected as required by RPC 1.6.
The Committee also notes that the following findings by other state ethics advisory panels are in accord with the views expressed herein:
Texas Professional Ethics Committee Ethics Opinion 408 involved an attorney's dual representation of parties to a real estate transaction, holding that an attorney may accept a portion of a title insurance premium in a multi party real estate transaction, but that the attorney is required to fully disclose the possible adverse effects of multiple representation to each of the prospective clients and only proceed with such representation when each client has consented after such disclosure and it is obvious that the attorney can adequately represent each client's interest. Opinion 408 is not available on Westlaw, but is discussed in Texas Professional Ethics Committee Ethics Opinion 525, which is. See 1998 WL 130065 (Tex. Prof. Eth. Comm.)
Illinois State Bar Association Revised Op. 93-01 likewise found that lawyers may receive compensation from lay agencies for doing title work without violating Rule 5.4 or other disciplinary requirements; full disclosure is mandatory. See 1994 WL 904187 (Ill. St. Bar. Assn.)