Can a lawyer act as in-house counsel for a mortgage company and, in that role, represent the lenders or borrowers in closing the company's loans?

Plain-English summary

A mortgage bank whose primary business was originating first mortgage loans, taking an origination fee but holding no proprietary interest in the note and deed of trust, wanted to employ an attorney as house counsel. In that role the attorney would represent the actual lenders and investors (with their consent) and the borrowers in closing the loans the company originated, while also performing unrelated in-house legal work for the company. The inquiry asked whether the attorney could represent these parties as house counsel, whether borrowers could be charged a fee, and, alternatively, whether the attorney could share office space with the company and receive a retainer.

The opinion concluded the attorney could not represent the lenders, investors, or borrowers in his capacity as house counsel for a company with no proprietary interest in the transaction. It reasoned that such representation would constitute the unauthorized practice of law by the employing corporation, so the attorney would be aiding a nonlawyer (the company) in the unauthorized practice of law in violation of the then-current Rule 3.1(a); and that having the lenders, investors, or borrowers pay a fee to the company for the attorney's service would be dividing legal fees with a nonlawyer in violation of the then-current Rule 3.2.

The opinion concluded the attorney could, however, maintain his independence and represent lenders, investors, or borrowers in response to referrals from the company, provided he made full disclosure of any regular relationship with the company and obtained the referred clients' consent. Under those conditions he could receive a retainer from the company for legal services he performed for the company, and could share office space with the company if he in fact maintained an independent practice. The opinion added that in no event could a lender require a borrower to employ a particular attorney.

Currency note

This opinion was issued in 1986, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the rule numbering then in effect (aiding the unauthorized practice of law was then Rule 3.1(a) and dividing fees with a nonlawyer was then Rule 3.2). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could a mortgage company's house counsel close the company's loans for the lenders or borrowers?

A: No. The opinion concluded that representation by house counsel for a company with no proprietary interest was unauthorized practice by the company, which the attorney would be aiding in violation of the then-current Rule 3.1(a).

Q: Could the borrowers pay the company a fee for the lawyer's closing work?

A: No. The opinion concluded that paying the company for the attorney's legal service was dividing legal fees with a nonlawyer, prohibited by the then-current Rule 3.2.

Q: Could the attorney still take clients referred by the company?

A: Yes. The opinion concluded the attorney could represent referred lenders, investors, or borrowers if he kept his practice independent, fully disclosed his relationship with the company, and obtained the clients' consent, and he could share office space and receive a retainer for the company's own legal work.

Background and rules framework

At the time, the opinion applied North Carolina's Rule 3.1(a), prohibiting a lawyer from aiding a person or entity in the unauthorized practice of law, and Rule 3.2, prohibiting the division of legal fees with a nonlawyer. In current numbering the subject matter corresponds to Model Rule 5.5 (unauthorized practice of law) and Model Rule 5.4 (professional independence; fee-sharing with nonlawyers).

Citations and references

Rules of Professional Conduct:

• N.C. Rule 3.1(a) (then in effect): aiding the unauthorized practice of law
• N.C. Rule 3.2 (then in effect): dividing legal fees with a nonlawyer
• Current counterparts: Model Rule 5.5 (unauthorized practice); Model Rule 5.4 (professional independence)

Other opinions cited:

• CPR 108 and CPR 240: a lender may not require a borrower to employ a particular attorney

See also

• NC State Bar Authorized Practice Advisory Op. 2002-1: Nonlawyer Closings
• Alabama Ethics Op. 1995-02: In-House Counsel for a Finance/Title Company

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-9/

Original opinion text

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

Inquiry:

X Corp. is a mortgage bank whose primary business is the origination of first mortgage loans. X Corp. receives an origination fee and has no proprietary interest in the note and deed of trust. X Corp. desires to employ Attorney A to represent the actual lender/investors who do not have proprietary interests in the transactions, with the knowledge and consent of said lenders/investors. Attorney A would also perform in-house legal services unrelated to such transactions on behalf of X Corp. as house counsel for X Corp.

May Attorney A ethically represent the borrowers in closing loans originated by X Corp. as well as representing the lender/investors who have proprietary interests? May the borrowers be charged a fee? It is understood that Attorney A may not represent any of the parties regarding any dispute arising out of the contemplated closing transactions and that Attorney A's representation would be limited to legal services performed in closing the loans.

In the alternative, may Attorney A ethically share space with X if A maintains independence and assures client confidentiality? May Attorney A receive a retainer from X in such a situation?

Opinion:

If Attorney A is employed as house counsel for X Corp., which merely originates the mortgage loans and does not have any propriety interests of its own, Attorney A may not ethically be employed as house counsel for X Corp. and, in that capacity, represent either the lenders or the borrowers in closing loans originated by X Corp. Where Attorney A is paid as and acts as house counsel for a corporation which has no proprietary interest in the transaction, his representation of the lenders, investors, or borrowers in that capacity may constitute the unauthorized practice of law by the corporation which employs him. Attorney A would be acting in violation of Rule 3.1 (a) in aiding a person, in this case X Corp., in the unauthorized practice of law. Additionally, for the lenders, the investors, or borrowers to pay a fee to X Corp. for this service performed by Attorney A would constitute the division of legal fees by Attorney A with a nonlawyer, specifically X Corp., in violation of Rule 3.2.

If Attorney A maintains his independence and simply represents lenders, investors, and/or borrowers in response to referrals from X Corp., he may do so ethically provided that full disclosure is made as to any regular relationship between Attorney A and X Corp. Under these circumstances, Attorney A may receive a retainer from X Corp. for legal services performed by Attorney A on behalf of X Corp. Attorney A may do so even though he shares office space with X Corp. if he does in fact maintain his practice independently and if, as previously indicated, all clients referred by X Corp. consent to the representation after full disclosure of any relationship between Attorney A and X Corp.

It is noted that in no event may a lender require a borrower to employ a particular attorney. CPRs 108 and 240.