At a mortgage closing, may a lawyer for the lender collect a title-company charge for searches and title examination that the lawyer neither fixes nor receives?

Plain-English summary

An attorney represented a lending institution at closing, collected all funds, and disbursed them per a closing statement that included a charge labeled "Closing charges, Searches, title examination and disbursements" of about $250-$275, to be remitted directly to the title company insuring the title, with no portion retained by the attorney and usually no connection between the title company and the mortgagee. The attorney prepared the closing documents and was compensated by the mortgagee on insured (G.I./F.H.A.) loans where points were charged, or by the mortgagor ($50) on conventional loans, with the mortgagor advised that the closing attorney represented only the lender.

The Committee compared its Opinion 99, where it held an attorney could not collect $300 at a closing under "Examination of Title" and remit the balance to a title company after taking a $75 fee, the vice being an improper division of fees under Canon 34. It found the present situation the same as Opinion 99, except that instead of splitting a fee, the attorney took no fee or a nominal fee and remitted directly to the title company the charge he could not share with it under Opinion 99, a difference of form, not substance.

The Committee held that where the attorney does not actually fix or receive the fee and has his principal reimbursed, a charge for "legal expenses" or "legal fees" is improper (Opinions 93, 103). Labeling the charge "Searches, title examination and disbursements" rather than "legal fees" did not change the result, because the estimated charges exceeded normal abstracting work and presumably reflected a charge for evaluating the state of title, which is the practice of law (Cape May Co. Bar Ass'n v. Ludlam; N.J. Bar Ass'n v. Northern N.J. Mtge. Associates). While it was not the Committee's province to judge the legal propriety of laymen's or corporations' acts, it invoked Canon 47: no lawyer shall permit his professional services, or his name, to be used in aid of, or to make possible, the unauthorized practice of law by any lay agency.

Currency note

This opinion was issued in December 1967, before New Jersey's September 13, 1971 adoption of the Disciplinary Rules (Code of Professional Responsibility), and well before the 1984 Rules of Professional Conduct and all later revisions. It applied Canon 34 (division of fees) and Canon 47 (aiding unauthorized practice). These subjects are now treated under RPC 5.4 (sharing fees and professional independence), RPC 5.5 (unauthorized practice), and RPC 1.5 (fees). Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific requirement mentioned here.

Common questions

Q: Can the closing attorney collect a title-company charge he doesn't fix or keep?

A: No. The Committee held that collecting a charge for legal work (title evaluation) the attorney neither fixed nor received is improper, the same vice as the fee-splitting it had condemned in Opinion 99.

Q: Does calling it "searches and title examination" instead of "legal fees" make it permissible?

A: No. The Committee said the difference is one of form, not substance, because the charge reflected title-evaluation work, which is the practice of law.

Q: What rule did the Committee invoke about the title company?

A: Canon 47, which forbids a lawyer to let his services or name aid or make possible the unauthorized practice of law by a lay agency.

Background and rules framework

The opinion ties together two Canons-era concerns: the bar on dividing legal fees with a layman (Canon 34) and the bar on aiding a lay agency's unauthorized practice of law (Canon 47), applied to a closing charge routed to a title company for what was effectively title-evaluation work. In current New Jersey terms, these map to RPC 5.4, RPC 5.5, and RPC 1.5.

Citations and references

Cases:

• Cape May Co. Bar Ass'n v. Ludlam, 45 N.J. 121 (1965): the practice of law embraces the art of conveyancing
• N.J. Bar Ass'n v. Northern N.J. Mtge. Associates, 32 N.J. 430 (1960): drawing legal instruments is the practice of law

Other authorities:

• Canons of Professional Ethics, Canons 34 and 47

Other opinions cited:

• NJ ACPE Opinion 99, 89 N.J.L.J. 689 (1966); Opinion 93, 89 N.J.L.J. 248 (1966); Opinion 103, 90 N.J.L.J. 49 (1967); Opinion 110, 90 N.J.L.J. 297 (1967)

See also

• NJ ACPE Op. 119: Borrower's Payment of the Lender's Legal Fees
• NJ ACPE Op. 133: Points on a Savings-and-Loan Mortgage

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp120-1.html

Original opinion text

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

90 N.J.L.J. 841
December 28, 1967

OPINION 120

Disbursing Closing Fees

We are asked if an attorney may represent a lending institution at closing, collect all the funds at the closing, disburse them in accordance with a form of closing statement attached to the inquiry, and collect and remit to the title company insuring the title a sum listed under the entry: Closing charges, Searches, title examination and disbursements... .

The average bill for the charges is stated to be $250-$275 and in most instances there is no connection between the title company and the mortgagee. The amount charged is to be paid directly to the title company, no portion being retained by the attorney. This is in addition to the usual premium charges for title insurance.

The preparation of the closing documents is done by the attorney. It is stated that the attorney is actually compensated by the mortgagee where it is an insured loan such as G.I. or F.H.A. and points are being charged. In other instances where a conventional loan is being closed, the mortgagors pay to the attorney the fee for the services of preparation of mortgage documents and closing. The sum charged is $50. Appropriate procedures are stated to be employed to advise the mortgagor that the closing attorney represents only the lending institution and that the interests of the purchaser mortgagor might be better protected if he engaged an attorney of his own choice.

In our Opinion 99, 89 N.J.L.J. 689 (1966), we held that an attorney could not actually collect the sum of $300 at a mortgage closing under the heading "Examination of Title" and remit the balance to a title company after taking a $75 fee for himself. The vice in that procedure was that there was an improper division of fees in violation of Canons of Professional Ethics, Canon 34 and our previous holdings in Opinion 93, 89 N.J.L.J. 248 (1966), and Opinion 87, 88 N.J.L.J. 799 (1965). Here the factual situation is the same as that in Opinion 99, supra, except that instead of splitting the fee for legal services, the attorney receives no fee or a nominal fee from the mortgagor and remits directly to the title company the charge which he could not share with the title company under Opinion 99.

The difference is one of form and not of substance. While there is no improper division of fees presented by the instant inquiry, the question is whether the attorney may properly act where his principal - the mortgagee - is to his knowledge requiring the mortgagor to pay a sum ($250-$275) which appears to us to include legal expenses.

We have previously stated that an attorney's principal may require the payment of legal fees as part of the cost of a transaction "where the attorney has fixed the amount of his fee in a manner consistent with Canons of Professional Ethics," Opinion 93, 89 N.J.L.J. 248 (1966). See also our Opinion 110, 90 N.J.L.J. 297 (1967).

However, where the attorney does not actually fix or receive the fee and has his principal reimbursed therefor, the charge for "legal expenses" or "legal fees" is improper. Opinion 93, supra, (municipality may not collect from purchaser $125 for "legal expense" to prepare deeds). See also Opinion 103, 90 N.J.L.J. 49 (1967) (holder of note may not collect attorney's fee not actually paid to attorney and fixed by attorney in accordance with Canons).

Is the situation changed because the charge is labeled as "Searches, title examination and disbursements" and not "legal fees." We think not. The estimated charges are in excess of those normally charged for abstracting work and presumably reflect a charge for evaluation of the state of title. Our Supreme Court has held that "The practice of law embraces the art of conveyancing...," Cape May Co. Bar Ass'n. v. Ludlam, 45 N.J. 121 (1965); see also New Jersey Bar Ass'n. v. Northern N.J. Mtge. Associates, 32 N.J. 430 (1960) (drawing of legal instruments is practice of law). It is not within the province of this Committee to determine the legal propriety of the acts of laymen or corporations. However, Canon 47 states that:

No lawyer shall permit his professional services, or his name, to be used in aid of, or to make possible, the unauthorized practice of law by any lay agency, personal or corporate.