Can a lender's lawyer charge the borrower or seller for the lender's attorney fees, and does that create a conflict?

Plain-English summary

The inquiring lawyer represented a mortgage company financing real-property sales secured by federally insured mortgages. In closing those sales, he prepared closing statements for the client and incidentally for the buyer and seller. The seller's statement reflected an "attorney's fee preparing instruments," ordinarily $25, the amount the FHA permitted the client to charge the parties and apply toward the client's attorney fees, even though the mortgage company's actual attorney-fee expense was substantially greater. The lawyer asked whether this created a solicitation problem or a conflict of interest, that is, whether the client or he had in effect solicited the parties to pay part of the fee.

The committee said that although an attorney in that situation has certain responsibilities toward those who indirectly pay or contribute toward his fee (citing Opinion 65-58), there is no impropriety in a mortgage company requiring those borrowing or receiving funds to bear or contribute to attorney fees or other expenses (citing ABA Informal Opinion 544), so long as the attorney makes clear to the parties that he is the attorney for the lending institution. It observed that any problem here arose because, unlike the typical case where the borrower-buyer pays the lender's expenses, a seller with no direct interest in the loan might not learn before closing that he was being charged a contribution toward the lender's attorney fees. The committee said a pragmatic solution was preliminary communication and explanation, and that from an ethical standpoint the seller should be at liberty to decline the expense and insist on another agreement with the buyer.

Currency note

This opinion was issued in 1969, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied the former Canons 9 and 27. A lawyer's acceptance of fees from someone other than the client, and the related conflict and disclosure concerns, are now addressed by Rules 4-1.8(f) and 4-1.7. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific requirement mentioned here.

Common questions

Q: Can a lender require the borrower to pay the lender's attorney's fee?

A: Under this opinion, yes. The committee found no impropriety in a mortgage company requiring borrowers or fund recipients to bear or contribute to its attorney's fee, so long as the lawyer makes clear he represents the lender.

Q: What about charging the seller for the lender's fee?

A: The committee said the seller should be free to decline the charge and insist on another arrangement with the buyer, and recommended preliminary explanation so the seller is not surprised at closing.

Background and rules framework

The opinion applied the former Canons 9 and 27 and drew on ABA Informal Opinion 544 and Florida Opinion 65-58. A lawyer's acceptance of compensation from one other than the client, with the attendant disclosure and conflict concerns, is now addressed by Rule 4-1.8(f), and concurrent conflicts by Rule 4-1.7. The Model Rule analogues are Rule 1.8(f) and Rule 1.7.

Citations and references

Rules of Professional Conduct:

• Canons 9 and 27 [Code of Professional Responsibility; third-party fees now in Rule 4-1.8(f)]

Other opinions cited:

• ABA Informal Opinion 544: a lender may require borrowers to bear its attorney fees
• Florida Opinion 65-58: a lawyer's responsibilities to those who indirectly pay his fee

See also

• FL Bar Ethics Op. 70-13: Finder's Fees on Client Investments

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-69-39/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-69-39-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 69-39
November 10, 1969
Advisory ethics opinions are not binding.
There is no ethical impropriety in a mortgage company requiring those borrowing or receiving funds from it to bear or contribute to the payment of the fee of the attorney employed by it or to other expenses; however, if such expenses are to be charged to a party other than the borrower, such parties should be at liberty to decline to bear such expense and to insist upon some other agreement with the buyer.
Canons: 9, 27
Opinions: 65-58; ABA Informal 544
Chairman MacDonald stated the opinion of the committee:
A member of The Florida Bar advises that he represents a mortgage company engaged in the business of financing the sales of real property secured by federally insured mortgages. In the course of the closing of such sales, the inquirer prepares closing statements for his client, and incidentally for the purchaser and seller. On the seller's closing statement there is reflected an item styled "attorney's fee preparing instruments." Ordinarily, the amount so shown as a charge against the seller is $25, the amount which the Federal Housing Administration permits the client to charge the parties to the transaction and apply toward the client's attorney fees. Ordinarily, the expense to the mortgage company by way of attorney fees is substantially greater but the amount reflected on the statement is simply credited toward the fee.
We are asked whether a solicitation problem exists, i.e., whether the client or the inquirer has in effect solicited the parties to the real property transaction to pay a part of the fee, or whether there thus exists therein a conflict of interest.
Although an attorney in such a situation has certain responsibilities toward those who may indirectly pay or contribute toward his attorney's fee (see our Opinion 65-58), there is certainly no ethical impropriety in the mortgage company requiring those borrowing or receiving funds from it to bear or contribute to the payment of attorney's fee or other expenses (see ABA Informal Opinion No. 544). Accordingly, so long as the attorney makes it clear to the parties that he is in fact the attorney for the lending institution, there is no difficulty.
Presumably any problem existent in the instant situation arose because it differs from the typical situation wherein the borrower as buyer is ordinarily the person required to pay the lender's expenses. In situations in which the seller has no direct interest in the details of the loan to the buyer, it may not come to his attention prior to the closing that he in fact is being charged a closing expense representing a contribution toward the expenses of the lender in the form of attorney's fees. Doubtless a pragmatic solution to this problem would be to avoid it in the first instance by preliminary communication and explanation. Obviously, from an ethical standpoint, the seller should be at liberty to decline to bear this expense and to insist upon some other agreement with the buyer.