Can a mortgage lender force a borrower to use the lender's own attorney for the title exam?

Plain-English summary

In 1987, a member of the Maryland House of Delegates asked the Attorney General whether mortgage lenders could make borrowers pay legal fees connected to a home loan closing, and specifically whether a lender could insist on using its own attorney to examine title rather than letting the borrower use a separate attorney of the borrower's own choosing. The Attorney General concluded that a lender could require a borrower to pay for legal services reasonably related to the loan, including a title examination, and could designate its own attorney to do that work instead of the borrower's attorney.

The opinion reasoned that a 1986 Maryland law regulating lender attorney's fees, Chapter 628 (Senate Bill 393), later codified at CL §§12-119 and 12-120, permitted this practice as long as the lender disclosed its attorney-selection requirements and any fee charged was tied to services actually performed for the loan. The opinion also concluded the practice did not violate federal antitrust law's ban on illegal tying arrangements, and that Maryland's legal ethics rules did not bar it either, because a lender's designated attorney represents the lender, not the borrower, even though the borrower pays the fee.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Can a mortgage lender require me to pay for its own attorney's title examination?
In this 1987 opinion, the Attorney General concluded that Maryland lenders could require a borrower to pay for a title examination performed by the lender's own attorney, rather than letting the borrower use a separate attorney of the borrower's choosing, as long as the fee met the disclosure and reasonableness requirements of CL §§12-119 and 12-120.

Did letting a lender pick its own closing attorney violate antitrust law?
No, according to this opinion. The Attorney General reasoned that requiring a borrower to pay the lender's attorney for a title examination was not an illegal tying arrangement under the Sherman Act, because the title examination and the loan were not separate products and the arrangement did not amount to an unreasonable restraint of trade, citing Foster v. Maryland State Savings & Loan Ass'n.

Did a lender's designated attorney represent the borrower in a mortgage closing?
No. The opinion concluded that a lender's designated attorney represents the lending institution, not the borrower, even though the borrower pays the fee, and that this arrangement did not violate Maryland's legal ethics rules because the borrower's acceptance of the loan commitment amounted to consent to the arrangement.

Background and statutory framework

The question arose after several constituents applying for first mortgage loans asked to use their own attorney to certify title, and were told by the lender that the loan could not be processed unless the lender's own attorney performed the title examination. The Attorney General looked first to Chapter 628 (Senate Bill 393), Laws of Maryland 1986, which added CL §§12-119 and 12-120 to the Commercial Law Article. CL §12-120 let a lender charge a borrower for attorney's fees on a loan secured by owner-occupied residential real property, but only if the fee was limited to services attributable to processing and closing the loan, was supported by a statement describing the services and confirming the attorney represented the lender, was reasonable, and was separately itemized on the settlement sheet. CL §12-119 required the lender to disclose, within three days of the loan application, its requirements for selecting an attorney and a good-faith estimate of the fee. The opinion noted that CL §12-120 was patterned on a Federal Home Loan Bank Board regulation, 12 C.F.R. §563.35, containing similar conditions.

The opinion also contrasted this framework with Article 56, §227C(a) of the Maryland Code, which barred real estate brokers and salesmen from requiring a buyer to use a particular title company or title attorney as a condition of settlement. Because the General Assembly had not enacted a parallel prohibition for lenders, and had instead only regulated disclosure and fee reasonableness, the Attorney General concluded the Legislature intended to permit lender-designated attorneys, leaving any broader restriction to a future legislative choice.

On antitrust, the opinion applied the Sherman Act's tying-arrangement test from Northern Pacific R. Co. v. United States and Fortner Enterprises, Inc. v. United States Steel Corp., concluding that a title examination and the underlying loan were not separate products under Jefferson Parish Hospital District No. 2 v. Hyde, so requiring the borrower to pay the lender's attorney for that examination was not an unlawful tie, following Foster v. Maryland State Savings & Loan Ass'n and Forrest v. Capital Building & Loan Ass'n. On legal ethics, the opinion concluded that Maryland Rules of Professional Conduct 1.7 and 1.8(f) permitted the arrangement because the borrower's acceptance of a loan commitment conditioned on the lender's attorney performing settlement services amounted to informed consent, citing Attorney Grievance Commission v. Lockhart and a Maryland State Bar Association ethics opinion.

Citations

Statutes:

• CL §12-120 (lender may charge a borrower for attorney's fees on a loan secured by owner-occupied residential real property, subject to disclosure and reasonableness conditions)
• CL §12-119 (lender must disclose its attorney-selection requirements and a fee estimate within three days of a loan application)
• CL §12-1005(c)(3)(i) (attorney's fees for closed-end credit loans)
• CL §§12-410(a)(3) and 12-307(a)(2) (related Commercial Law Article provisions on loan costs)
• CL §12-122 (misdemeanor penalty for knowing and willful violations of the attorney-fee disclosure provisions)
• CL §11-204(a)(1) (Maryland Antitrust Act's ban on unreasonable restraints of trade)
• CL §11-203(9) and (10) (Maryland Antitrust Act's exemption for banks and savings and loan associations)
• Chapter 628 (Senate Bill 393), Laws of Maryland 1986 (enacting CL §§12-119 and 12-120)
• Article 56, §227C(a) of the Maryland Code (bars real estate brokers/salesmen from requiring a buyer to use a particular title company or attorney)
• 12 C.F.R. §563.35 (Federal Home Loan Bank Board regulation on lender attorney's fees, the model for CL §12-120)
• 15 U.S.C. §1 (Sherman Act §1, restraint of trade)
• 15 U.S.C. §2 (Sherman Act §2, monopolization)

Cases:

• Jacques v. First National Bank, 307 Md. 527, 539 (1986)
• Foster v. Maryland State Savings & Loan Ass'n, 590 F.2d 928 (D.C. Cir. 1978)
• Northern Pacific R. Co. v. United States, 356 U.S. 1, 5-6 (1958)
• Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 507 (1969)
• Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 19 (1984)
• Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486 (11th Cir. 1985)
• Forrest v. Capital Building & Loan Ass'n, 385 F.Supp. 831 (M.D. La. 1973), aff'd per curiam, 504 F.2d 891 (5th Cir. 1974)
• Attorney Grievance Commission v. Lockhart, 285 Md. 586, 593 n. 6 (1979)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1987/Volume72_1987.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

CREDIT REGULATION

Mortgages—Settlement Services—Lender May Require Borrower To Pay For Legal Services Related To Loan And May Require That Its Designated Attorney Examine Title.

November 6, 1987

The Honorable Kevin Kelly
Maryland House of Delegates

You have requested our opinion on several questions related to mortgage loans and closing costs. Specifically, you ask:

1. "When a loan is to be secured by owner-occupied residential real property, what specific services rendered by the lender's attorney may the borrower be required to pay?”

2. "When a borrower makes a loan application to be secured by owner-occupied residential real property, may the lender refuse to permit the borrower's licensed attorney to perform the necessary title examination, and may the lender predicate the processing of the loan upon the lender's attorney preparing the title examination?” You suggest that §12-120 of the Commercial Law Article prohibits the practice.

3. "In the event that the lender would refuse to permit the borrower's attorney to perform the title examination, what sanctions under the Maryland law may be imposed against the lender?”

For the reasons stated below, we conclude as follows:

1. In general, a mortgage lender may require a borrower to pay for all legal services reasonably related to the loan transaction, including title examination.

2. A lender may require that its attorney, rather than the borrower's attorney, conduct the title examination.

3. Because the practice in question is legally permissible, no sanctions may be imposed against the lender.

I
Introduction

A title examination is required in a mortgage loan transaction, primarily to insure a good and valid lien for the lender. Assurance of good title also benefits the buyer/mortgagor, of course, and typically the cost is borne by the borrower. See §§12-120(b) and 12-1005 of the Commercial Law Article (“CL” Article).1 See also CL §§12-410(a)(3) and 12-307(a)(2). See generally 67 Opinions of the Attorney General 98 (1982).

Your questions arise because several constituents applied for first mortgage loans and requested of the lender that a particular attorney be permitted to certify title. These potential borrowers were informed by the lender that the loans could not be processed unless the lender's attorney performed the title examination.2

We first consider the effect of the 1986 legislation to which you refer specifically in your letter. Then we briefly examine whether the requirements of the antitrust laws or of legal ethics affect the practice about which you inquire.

II
1986 Legislation

Chapter 628 (Senate Bill 393) of the Laws of Maryland 1986 imposed, in the words of the bill's title, “certain requirements and certain restrictions on lenders with regard to loans secured by real property mortgages [or] deeds of trust. . . ,”3 One set of requirements is codified in §12-120 of the Commercial Law Article (“CL” Article):

“(a) This section applies to any loan to be secured by owner-occupied residential real property.
(b) A lender may require the borrower to pay for services rendered by the lender's attorney in connection with a loan described in subsection (a) of this section only if:
(1) The attorney's fee is limited to legal services attributable to processing and closing the loan and not to unrelated services performed by the attorney for the lender;
(2) The amount of the attorney's fee, if in excess of $100, is supported by a statement, provided to the borrower at or prior to settlement, that:
(i) Describes the services performed;
(ii) Sets forth the time spent by the attorney and the hourly rate or other basis for determining the fee;
(iii) States that the legal services are being performed on behalf of the lender and not on behalf of the borrower; and
(iv) States that the services are being paid for by the borrower;
(3) The amount of the attorney's fee is reasonable on the basis of the legal services performed; and
(4) The attorney's fee is separately itemized on the loan settlement sheet and identified as a fee to the lender's attorney.”

CL §12-120 is patterned after a regulation of the Federal Home Loan Bank Board. This regulation, 12 C.F.R. §563.35, provides in part:

“(d) In connection with a loan on a home . . . occupied or to be occupied by the borrower, an insured institution or subsidiary thereof may require such borrower to reimburse it for legal services rendered by its attorney, or to directly pay such attorney for such services, only if:
(1) Such attorney's fee is limited to legal services attributable to processing and closing such loan (and not unrelated services performed for the institution or subsidiary by the attorney);
(2) Such attorney's fee, if in excess of $100, is supported by a statement provided to the borrower at or prior to settlement which: (i) Describes the legal services being performed, (ii) sets forth the time being spent by such attorney and the hourly rate or other basis for determining such fee, (iii) states that the legal services are being performed on behalf of the insured institution or subsidiary and not on behalf of the borrower, and (iv) states that such services are being paid for by the borrower;
(3) Such attorney's fee does not exceed that which is reasonable and commensurate with the legal services being performed; and
(4) Such attorney's fee is separately itemized on the loan settlement sheet and identified as a fee to the lender's attorney.”

Both the federal regulation and CL §12-120 state that certain legal services necessary for the loan “are being performed on behalf of the lender and not on behalf of the borrower,” even though they are paid for by the borrower.4 But, both the regulation and CL §12-120 also recognize that there are other legal services—characterized as “unrelated” to the loan—rendered to the lender for which the borrower may not be charged.5

The restrictions in CL §12-120 are augmented by the disclosure requirements in CL §12-119:

“(a) This section applies to any application for a loan to be secured by a first mortgage or first deed of trust on a borrower's primary residence.
(b) Within 3 days after the application for a loan described in subsection (a) of this section, or earlier upon request, any lender that imposes fees on borrowers for settlement services, or document review services, performed by a lender designated attorney shall provide a prospective borrower with a written notice stating:
(1) The lender's requirements concerning selection of an attorney or other person to perform settlement services relating to the purchase of the real property; and
(2) A good faith estimate of the fee or fees to be charged to the borrower.
(c) If notice is required by this section, a copy of the notice, signed by the applicant, shall accompany any executed application for a loan.”

Chapter 628 reflects the General Assembly's awareness of the common practice of the lender's designating the attorney to do the title work, for it specifies disclosure of “[t]he lender's requirements concerning selection of an attorney ... to perform settlement services . . . .” CL §12-119(b)(1).

This legislation resulted from the work of the Governor's Task Force on Real Property Closing Costs, which preceded the introduction of Senate Bill 393. Among the recommendations considered and rejected by the Task Force was the following:

“Restrict the selection by lenders of settlement service providers, i.e., give the buyer the right to select settlement service procedure.
The Task Force rejected this suggestion as an unworkable intrusion on lenders' strong interests in having competent and effective settlement services and documentation of the loan and property transfer. The Task Force did approve Recommendation 5 which requires an early disclosure of lender required attorney fees.” Report at 50.

In light of the statutory language, its federal model, and its legislative history, we conclude that CL §§12-119 and 12-120 do not prohibit a lender from designating the attorney who will do the title work in a mortgage loan transaction. A lender that does so is not subject to sanctions.6

The regulatory provisions of CL §§12-119 and 12-120 stand in marked contrast to the following prohibition, applicable to real estate salesmen and brokers, in Article 56, §227C(a) of the Maryland Code:

“It is unlawful for any real estate broker, real estate salesman or lawyer acting as a broker to require as a condition of settlement of single-family dwellings that a buyer employ a particular title insurance, settlement, or escrow company or title attorney.”

Should a prohibition of that kind, applicable to lenders, be thought desirable as a matter of policy, the General Assembly should amend the statute accordingly.

With regard to the specific services rendered by the lender's attorney for which the borrower may be required to pay, CL §12-119 refers to “settlement services or document review services”; CL §12-120 refers to “legal services attributable to processing and closing the loan” and to “unrelated services performed for the lender.” We cannot draw up an all-inclusive list of legal services, but they surely include a title search; preparation of any deed, note, mortgage, loan agreement, disclosure statement, lien release settlement sheet or other document involved in the loan transaction or necessary for obtaining title insurance; and services incident to conducting the settlement or closing.

In this regard, we note that many lenders allow the borrower to select a qualified attorney to perform necessary services but then have the work and documents reviewed by an attorney of the lender's choice. We believe a reasonable charge for this subsequent review would be authorized under the statute.

On the other hand, we can envision other legal services that, while a necessary predicate to a loan closing, are not automatically services that may be charged to the borrower. These might include negotiation or litigation to clarify title or to remove a lien or research on a lender's authority to make a particular kind of loan. However, problems of this nature can only be resolved on a case-by-case basis.

III
Antitrust Considerations

The antitrust laws generally do not prohibit a bank from requiring borrowers to pay the bank's attorney to examine and certify title to residential real property that secures a loan. See Foster v. Maryland State Savings & Loan Ass'n, 590 F.2d 928 (D.C. Cir. 1978) (interpreting Maryland and federal law). In our view, that requirement is neither an illegal tying arrangement nor otherwise an unreasonable restraint of trade.

Section 1 of the Sherman Act, 15 U.S.C. §1, prohibits contracts “in restraint of trade or commerce among the several States;”7 Section 2, 15 U.S.C. §2, prohibits monopolization. A tying arrangement, defined as conditioning the sale of one product (the tying product) on the purchase of a different (or “tied”) product, is unlawful under Section 1 if the seller has “sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a ‘not insubstantial’ amount of interstate commerce is affected.” Northern Pacific R. Co. v. United States, 356 U.S. 1, 5-6 (1958).

By definition, two separate products must be involved. Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 507 (1969). Products are separate only if the “character of the demand” for the products is different, and, therefore, a different “market” exists for each. Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 19 (1984). If the economic advantages of a joint package are substantial, however, the products might be viewed as a unit. 466 U.S. at 40.

In the case of the purchase of residential property loans and legal services that insure the security of the loans, the products do not appear to be separate. Payment of the bank's attorney for performing a title examination “represent[s] an incidental and inseparable part of [the] ‘purchase’ of the loans, rather than the ‘purchase’ of a tied product.” Foster v. Maryland State Savings & Loan Ass'n, 590 F.2d at 931. See also Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486 (11th Cir. 1985). Moreover, because the legal services are provided to the bank, despite the charge to the borrower, the services are not for separate sale but are incidental to the cost of the loan, a cost that the bank may legally pass on to the borrower. Foster v. Maryland State Savings & Loan Ass'n, 590 F.2d at 932-33, citing Forrest v. Capital Building & Loan Ass'n, 385 F.Supp. 831 (M.D. La. 1973), aff'd per curiam, 504 F.2d 891 (5th Cir. 1974).

Finally, absent a showing that borrowers are prevented from selecting their own attorneys to represent their individual interests or that the borrowers are prevented from obtaining a loan elsewhere, a borrower probably cannot demonstrate an unreasonable restraint of trade in violation of Sections 1 or 2 of the Sherman Act. The Foster court found that this practice imposed only a de minimus restraint, and that in any event, the practice, specifically authorized by federal regulation and Maryland law, was reasonable. Foster v. Maryland State Savings & Loan Ass'n, 590 F.2d at 933. Thus, the questioned practice of requiring the borrower to pay the bank's attorney for performing a title examination does not appear to violate the federal antitrust laws.

IV
Ethical Considerations

Although we do not ordinarily address ethics matters in an opinion, we observe that the pertinent rules of legal ethics do not bar a lender from requiring that a specific settlement lawyer be used and that the borrower pay for the lawyer's settlement services. Both Maryland Rule of Professional Conduct 1.7, regarding conflict of interest generally, and Rule 1.8(f), regarding compensation from someone other than the client, leave considerable room for client consent to otherwise prohibited practices. See Attorney Grievance Commission v. Lockhart, 285 Md. 586, 593 n. 6 (1979). As the Maryland State Bar Association Committee on Ethics observed, regarding the former disciplinary rules:

“[I]f the borrower has accepted a loan commitment containing the condition precedent (i.e., that the lender's attorney perform settlement services), then, he too has knowledge of the employment of the attorney by the lending institution and his obligation to pay the attorney's fee. Clearly, the attorney does not represent the borrower, but rather the lending institution. The attorney is not necessarily bound to represent the one who pays his fee.” Informal Opinion Docket 78-22, at 2 (April 19, 1978).

See also Docket 78-44 (June 5, 1978). See generally Annotation, Attorney and Client: Conflict of Interest in Real Estate Closing Situations, 68 A.L.R.3d 967 (1976).

V
Conclusion

In summary, it is our opinion that:

1. In general, a mortgage lender may require a borrower to pay for all legal services reasonably related to the loan transaction, including title examination.

2. A lender may require that its attorney, rather than the borrower's attorney, conduct the title examination.

3. Because the practice in question is legally permissible, no sanctions may be imposed against the lender.

J. Joseph Curran, Jr., Attorney General
Francis X. Pugh, Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice

1 CL §12-120, which we discuss further in Part II below, applies to “any loan to be secured by owner-occupied residential real property.” CL §12-1005(c)(3)(i), which permits charges for “[a]ttorney's fees for services rendered in connection with the preparation, closing, or disbursement of [a] loan,” applies to first or second mortgage loans made under CL Subtitle 10, Credit Grantor Closed End Credit Provisions.

2 The lender's requirement is a precondition to its accepting the loan application and predates any contract between the lender and a prospective borrower. See Jacques v. First National Bank, 307 Md. 527, 539 (1986).

3 For ease of reference, we use the word “mortgage” to mean “deed of trust” as well.

4 At time of closing, the lender may well have a greater financial stake in the mortgaged property than does the borrower.

5 The federal regulation also contains a tie-in prohibition not included in the Maryland statute: “No insured institution or service corporation affiliate thereof may grant any loan on the prior condition, agreement, or understanding that the borrower contract with any specific person or organization for the following: (3) Legal services rendered to the borrower. . ..” 12 C.F.R. §563.35(a).

6 However, CL §12-122 provides as follows: “Any lender who knowingly and willfully violates any provision of §12-102, §12-103, §12-109.2, §12-113, §12-118, §12-119, §12-120, or §12-121 of this subtitle is guilty of a misdemeanor and on conviction is subject to a fine not exceeding $500 or imprisonment not exceeding 6 months or both.” A lender who knowingly and willfully fails to give the required disclosures or requires a borrower to pay an attorney's fee that is not reasonable or that is otherwise prohibited could be subjected to the penalties set forth in CL §12-122.

7 Similarly, CL §11-204(a)(1) prohibits contracts that “unreasonably restrain trade or commerce.” The Maryland Antitrust Act, however, generally exempts state and national banks and state and federal savings and loan associations. See CL §11-203(9) and (10). Therefore, this opinion considers only the requirements of federal antitrust law.