Can an attorney participate in closing a savings-and-loan mortgage where the borrower pays points, given an earlier opinion calling points improper?

Plain-English summary

An attorney for a savings and loan association asked whether it was ethical to participate in a mortgage loan transaction involving the payment of "points" by the mortgagor to obtain the loan, where the lender was a New Jersey savings and loan association. The inquiry was directed to the Committee's Opinion 71, 88 N.J.L.J. 170 (1966), which had held attorney participation in a mortgage closing involving the payment of points by the mortgagor to be improper and unethical, subject to noted exceptions (where the charge was for a bona fide service rendered to the borrower, and transactions eligible for FHA insurance).

The Committee considered the question in light of the Savings and Loan Act (1963), L. 1963, c. 144, particularly Section 48(10), which authorizes such an association to "take from its members a premium for priority or privilege of loan or acquisition of real estate" and provides that "no premium so taken shall be deemed usurious," with the rate of premium to be agreed upon or determined by auction.

The Committee concluded that, by statute, the usury prohibition was made inapplicable to loans under the Savings and Loan Act, so attorney participation in the closing of such loans, where premiums are charged to the borrower in accordance with the statute, would not be professionally improper. It characterized this as another exception to the general principles of Opinion 71.

Currency note

This opinion was issued in June 1968, 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. Its analysis turns on a 1963 statute (Section 48(10) of the Savings and Loan Act) whose text and continued force should be verified independently; the related ethics principle, that a lawyer may not assist conduct the lawyer knows is unlawful, is now treated under RPC 1.2(d). Treat this page as historical context, not current guidance. Verify against current rules and statutes before relying on any specific requirement mentioned here.

Common questions

Q: Doesn't Opinion 71 make it improper for an attorney to close a loan with points?

A: As a general matter yes, but the Committee held the Savings and Loan Act exempts such association loans from the usury rule, so closing them with statutory premiums is a further exception to Opinion 71.

Q: What made the difference for savings-and-loan mortgages?

A: The Committee relied on Section 48(10) of the 1963 Savings and Loan Act, which provides that a premium taken by the association "shall not be deemed usurious," removing the usury concern underlying Opinion 71.

Background and rules framework

The opinion builds on Opinion 71, which treated attorney participation in a points-mortgage closing as improper because of the usury concern, and carves out a statutory exception based on Section 48(10) of the Savings and Loan Act (1963). In current terms, a lawyer's participation in a transaction the lawyer knows to be unlawful is governed by RPC 1.2(d); where a statute makes the charge lawful, that concern does not arise.

Citations and references

Statutes:

• Savings and Loan Act (1963), L. 1963, c. 144, Section 48(10)

Other opinions cited:

• NJ ACPE Opinion 71, 88 N.J.L.J. 170 (1966): attorney participation in a points-mortgage closing held improper, with limited exceptions

See also

• NJ ACPE Op. 129: Sharing an Office With Realtors and Insurers
• NJ ACPE Op. 125: Participating in a Fraudulent Conveyance

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp133-1.html

Original opinion text

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

91 N.J.L.J. 373
June 6, 1968

OPINION 133

Mortgage Charges Usury

An attorney for a savings and loan association has inquired whether it is ethical to participate in a mortgage loan transaction involving the payment of "points" by the mortgagor in order to obtain the loan, wherein the lending institution is a savings and loan association of New Jersey.

The inquiry is directed to this Committee's Opinion 71, 88 N.J.L.J. 170 (1966), wherein attorney participation in a mortgage closing involving the payment of "points" by the mortgagor was held improper and unethical. Certain exceptions noted in the opinion are where the charge was based on a bona fide service rendered to the borrower, and transactions eligible for insurance by the Federal Housing Administration.

This committee is requested to consider its opinion in the light of the "Savings and Loan Act (1963)" (L. 1963, c. 144) particularly, Section 48.(10):

Take from its members, a premium for priority or privilege of loan or acquisition of real estate and no premium so taken shall be deemed usurious. The rate of premium may be agreed upon or be determined by auction.

Clearly by statute the usury prohibition is made inapplicable to loans under the Savings and Loan Act, and attorney participation in the closing of such loans where, in accordance with the statute, premiums are charged to the borrower, would not be professionally improper.

This is another exception to the general principles enunciated in Opinion 71 of this Committee.