Can a lender's attorney do the borrower's title and closing work, billed through the lender, in a mortgage loan?

Plain-English summary

A lawyer representing a lending institution in a mortgage loan proposed to perform the title search, arrange title insurance, and prepare the note, mortgage, and other closing papers. The attorney would bill the lender; the lender would bill the borrower for that work, tell the borrower the loan would close at the attorney's office, and advise the borrower he could retain his own attorney if he chose. The inquirer asked whether this violated the Rules of Professional Conduct.

The Committee's answer was "a clear 'yes.'" It regarded the proposed plan as a scheme to avoid N.J.S.A. 46:10A-6, which prohibits a lending institution from requiring a mortgage borrower to employ the lender's counsel or an attorney specified by the lender, and which preserves the borrower's right to be represented by a New Jersey attorney of his own selection.

Currency note

This opinion was issued in 1987, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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: Can a lender's lawyer prepare the borrower's closing documents and bill the borrower through the lender?

A: Per the opinion, no. The Committee held the proposed arrangement improper because it operated as a scheme to evade the borrower's statutory right to select his own counsel.

Q: Did telling the borrower he could hire his own attorney cure the problem?

A: No. The Committee treated the whole plan as a device to avoid N.J.S.A. 46:10A-6, despite the notice to the borrower that he could retain separate counsel.

Background and rules framework

The opinion turns on N.J.S.A. 46:10A-6, the statute that bars a lender from requiring a mortgage borrower to use the lender's counsel and guarantees the borrower the right to choose his own New Jersey attorney. The Committee read the proposed billing arrangement as an attempt to circumvent that protection.

Citations and references

Statutes:

• N.J.S.A. 46:10A-6 (borrower's right to choose counsel in a mortgage loan; bar on lender requiring lender's counsel)

See also

• NJ ACPE Op. 601: Counsel to County College Also Counsel and Director of Its Depository Bank

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp608-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

120 N.J.L.J. 1112, December 10, 1987

OPINION 608

Attorney for Mortgage Lender Performing Services for Borrower

The inquirer, as attorney for a lending institution representing it in a mortgage loan transaction, proposes to perform the title search, provide for insuring the title and presumably prepare the note, mortgage, and other closing papers. The attorney will bill the lender for such services. The lender, in turn, will bill the borrower for that work and advise the borrower that the attorney will close the mortgage loan at the attorney's offices and that the borrower may secure his own attorney to represent him if he chooses. The inquirer asks whether this procedure is in violation of the Rules of Professional Conduct.

Our answer is a clear "yes." We regard the proposed plan as a scheme to avoid the provisions of N.J.S.A. 46:10A-6, which prohibits a lending institution from requiring a borrower of a loan to be secured by a mortgage to employ the services of the lender's counsel or an attorney specified by the lender. The statute provides that:

No banking institution or other financial institution authorized to engage in the business of making loans secured by mortgage, hereinafter referred to as a "lender," shall require a borrower of a loan to be secured by a mortgage on real estate, to employ the services of the lender's counsel or an attorney specified by the lender but the borrower shall have the right to be represented in the transaction by an attorney at law of New Jersey of his own selection.