Can a developer's salaried attorney handle condominium closings for a flat fee without clearly telling buyers they should retain their own independent counsel?

Plain-English summary

Lawyer A was a full-time salaried employee of X Corporation, whose affiliate Y was a large condominium developer. A did all the legal work in closing Y's sales. Buyers were charged a flat $150 in closing costs, stated to "include costs for examination of title, title insurance policy, survey, appraisal and credit report fees, mortgage service charges and all other usual closing costs." A's salary came from X, not from the closing fee. The contract did not require buyers to use A, and A did not purport to represent the buyer; A stated he represented the mortgagee, who knew of his employment, and that a buyer could obtain an owner's fee title policy if he asked. The cover letter forwarding the contract told buyers that Y would be represented at closing by its attorney and that the buyer "may, if you desire, retain your own attorney."

The Committee concluded that the attorney closing title for the seller had not fulfilled the disclosure duty of Canon 6, which requires a lawyer at the time of retainer to disclose all circumstances of his relations to the parties and any interest in the controversy that might influence the client's choice of counsel. It found that the flat fee, with its catch-all "all other usual closing costs," might lead a buyer to believe he need not engage independent counsel, and that the letter's notice did not amount to full disclosure because it did not alert the buyer that his interests might be better protected by independent counsel.

The Committee pressed the point about the optional owner's title policy, asking when it would not be to a buyer's advantage to have one, yet here the buyer had to indicate his desire to get it, with no one to advise him to ask. Recognizing that the letter did not expressly say the seller's attorney would represent anyone else, the Committee held that the agreement and the letter had to be read as a unit, and that the attorney appearing at the closing under these circumstances was acting improperly.

Currency note

This opinion was issued in May 1964, 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 6 of the former Canons of Professional Ethics, with its disclosure duty; conflicts and the related disclosure and informed-consent requirements are now governed by RPC 1.7. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Did the notice that buyers "may" retain their own counsel satisfy the disclosure duty?

A: No. The Committee held the letter did not amount to full disclosure under Canon 6, because it did not alert buyers that their interests might be better protected by independent counsel.

Q: What was the problem with the flat $150 closing fee?

A: Its catch-all phrase "all other usual closing costs" could lead a buyer to believe he need not engage independent counsel, contributing to the failure of disclosure.

Q: Why did the optional owner's title policy concern the Committee?

A: Because the buyer had to ask for the policy himself, and no one in the arrangement was positioned to advise him to do so, even though such a policy would generally be to his advantage.

Background and rules framework

The opinion applied Canon 6 of the former Canons of Professional Ethics, which required disclosure of the lawyer's relations to the parties and any interest in the controversy, and barred representing conflicting interests absent express consent after full disclosure. Reading the closing agreement and cover letter together, the Committee found the disclosure inadequate. These disclosure and consent duties are now reflected in RPC 1.7. It cited Opinion 7 and In re Kamp.

Citations and references

Rules of Professional Conduct (as in effect at the time):

• Canon of Professional Ethics 6 (adverse influences and conflicting interests; duty of disclosure at retainer)

Cases:

• In re Kamp, 40 N.J. 588 (1963), ethics of a developer's attorney and disclosure to buyers

Other opinions cited:

• N.J. ACPE Opinion 7, 86 N.J.L.J. 405 (1963): developer's attorney and the buyer

See also

• NJ ACPE Op. 51: Developer's Attorney Dual-Representation Conflict
• NJ ACPE Op. 212: Dual Representation of Buyer and Seller; Withdrawal
• NJ ACPE Op. 120: Disbursing Closing Fees to a Title Company

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp40-1.html

Original opinion text

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

87 N.J.L.J. 281
May 7, 1964

OPINION 40
Conflict of Interests
Representation at Closing
Closing Fees

An attorney inquires about the ethics of his conduct in the following situation.

A, a lawyer, is a full-time employee of X Corporation, one of whose affiliate corporations is Y, a large real estate development company which sells apartment units under the condominium concept of ownership. A does all the legal work for Y in closing its sales. The purchaser is charged a flat sum of $150 as closing costs, "which will include costs for examination of title, title insurance policy survey, appraisal and credit report fees, mortgage service charges and all other usual closing costs." A receives a salary from X, no part of which comes from the $150 closing fee.

The contract of sale does not require the purchaser to employ A's services and A does not directly purport to represent the purchaser. The attorney states that he represents the mortgagee who has full knowledge of A's employment with X and Y and all parties desire this arrangement; that there is a compulsory requirement for a mortgagee title policy, that the purchaser may obtain a fee policy if desired and, if so, his office will obtain it for him. The charge for both the mortgagee and owner's policy is included in the $150.

The following statement appears on the covering letter forwarding the contract to the purchaser:

Y, Inc., will be represented at closing by its attorney. You may, if you desire, retain your own attorney to represent you at closing and in all matters preliminary to closing.

The Committee is of the opinion that the attorney in closing title for the seller has not fulfilled the obligation which is set forth in Canons of Professional Ethics, Canon 6:

It is the duty of a lawyer at the time of retainer to disclose to the client all the circumstances of his relations to the parties, and any interest in or connection with the controversy, which might influence the client in the selection of counsel.

It is unprofessional to represent conflicting interests, except by express consent of all concerned given after a full disclosure of the facts. Within the meaning of this canon, a lawyer represents conflicting interests when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose.

The agreement with respect to closing fees, after specifying not unusual charges, then adds "and all other usual closing costs." This provision in the agreement may lead a buyer to believe that he need not engage independent counsel to represent and protect his interests. Nor do we believe that there is a "full disclosure of the facts" contained in the statement in the letter forwarding the contract to the purchasers stating that the seller will be represented at closing by its attorney but that the buyer may, if he desires, retain his own attorney to represent him at closing. This statement does not alert the buyer to the fact that his interests might be better protected by his engagement of independent counsel. See N.J. Advisory Committee on Professional Ethics, Opinion 7, 86 N.J.L.J. 405 (1963), and In re Kamp, 40 N.J. 588 (1963).

The attorney states in his letter that the purchaser may obtain a fee policy if desired and, if so, his office will obtain it for him. When would it not be to the advantage of the purchaser to have a fee policy? Yet, here he must indicate his desire to get it. Who will advise him to ask for a fee policy?

We recognize that the letter enclosing the agreement sets forth that the seller will be represented at closing by its attorney; that there is no express representation that the seller's attorney will represent anyone else. But we believe that the agreement and the letter must be considered as a unit, and that the attorney appearing at the closing under these circumstances is acting improperly.