Can a lawyer who owns or acts as agent for a title insurance company place title insurance for the lawyer's own real estate clients?

Plain-English summary

The Committee considered two inquiries about attorneys connected to title insurance. In the first, two law firms' principals planned to buy stock in a local title abstract company (the principals collectively holding a majority, none individually), to use that company for their real estate purchaser clients after disclosure, and also to represent a condominium developer whose offering statement would attach a specimen policy from that company, with one firm possibly serving as the agency's counsel. The firms asked whether they could use the agency for their purchaser clients, represent the seller while owning the agency, serve as the agency's counsel, and whether forming a new company instead of buying into one would change the answers.

The Committee held the first three questions fall within Opinions 513 and 495, which identified the conflict: title risk has shifted from lawyers to title insurers, and the purchaser's and lender's lawyer has a duty to try to expand the title company's liability while the company seeks to limit it. Where the same attorney is both the company's binding agent and the purchaser's and lender's lawyer, he owes a duty of fidelity to each interest. Each title binder with standard and specific exceptions thus presents an absolute conflict requiring independent evaluation and potentially hard negotiation, contrary to professional standards and inherently creating an appearance of impropriety that cannot be permitted even with disclosure to all parties. Forming a new company rather than buying into an existing one made no difference.

As to the second inquirer, an attorney acting as a title insurance agent (with no beneficial or stock interest, only an agency in a proprietary capacity doing the abstract work), the Committee found the situation governed by Opinions 495 and 513: the guidelines are clear, and whether the attorney's activity constitutes a conflict, curable by full disclosure, will depend on the facts and conduct of the attorney.

Currency note

This opinion was issued in 1988, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct, which abolished the "appearance of impropriety" standard the Committee relied on here. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Can a lawyer who owns the title company place title insurance for his own buyer clients?

A: Per the opinion, no, where the lawyer also represents the purchaser and lender. The Committee found an absolute conflict that cannot be cured even by full disclosure, because the lawyer must try to expand the company's liability while the company limits it.

Q: Does forming a new title company instead of buying into one change the analysis?

A: No. The Committee saw "no reason for changing our opinion simply because the abstract company in question is newly formed rather than by separate purchase of stock interests."

Q: Is an attorney who is only a title agent (no ownership) always conflicted?

A: Not necessarily. The Committee said that situation is governed by Opinions 495 and 513, and whether it is a conflict, curable by full disclosure, depends on the facts and the attorney's conduct.

Background and rules framework

The opinion applies the Committee's conflict-of-interest and appearance-of-impropriety analysis from Opinions 495 and 513, anchored in NJ RPC 1.7 (Model Rule 1.7). The core principle is that a lawyer cannot owe simultaneous duties to expand and to limit a title insurer's liability; where the lawyer's ownership creates that divided loyalty, the conflict is not curable by consent.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / NJ RPC 1.7 (conflict of interest; the former appearance-of-impropriety standard)

Other opinions cited:

• ACPE Opinion 495, 109 N.J.L.J. 329 (1982) (attorney and title insurance conflict)
• ACPE Opinion 513, 111 N.J.L.J. 392 (1983) (sources of the title-insurance conflict)

See also

• NJ ACPE Op. 639: Law Firm Using a Title Insurance Agency Owned by an Associate
• NJ ACPE Op. 624: A Lawyer's For-Profit Adoption Referral Business

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp612-1.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.

121 N.J.L.J. 1010, May 19, 1988

OPINION 612

Conflict of Interest: Relationships Between Attorneys and Title Insurance Agencies

Two separate inquiries made by separate attorneys have been submitted to this Committee for an advisory opinion. These inquiries involve substantially similar questions arising out of the relationship of attorneys either acting as agents for companies issuing policies of title insurance in the State of New Jersey or having a financial interest in a title company with whom they cause policies of title insurance to be issued in behalf of their personal clients.

In the first inquiry, the inquirer states the facts to be as follows:

Two law firms, consisting of three and four principals, respectively, are contemplating purchasing stock interests in a local title abstract company, which is an agent for a nationally known underwriter. The stock interests will be held by the principals, individually, while no one person or firm (if the stock interests of the respective principals are aggregated) will hold a majority interest, the individual attorneys collectively will hold a majority interest. The abstract company's offices are independently staffed and independently operated. The individual principals will be entitled to dividends as any other shareholders.

The inquirer further states that:

The two law firms contemplate utilizing the local title abstract company for the benefit of real estate purchaser clients (and those purchasers' mortgage lenders) in the same manner as would other attorneys who have no stock interest, after full disclosure to their clients.

In addition, the law firms both serve as counsel to a real estate developer of residential condominium units and represent the developer in connection with the sale of those units. It is contemplated that a specimen title policy to be issued by the local company (as agent for the national underwriter) will be attached to the public offering statement for the condominium and the agency will attempt to solicit orders. The attorneys for the buyers of the units will be free to use any title company they choose, although it is contemplated the agent would receive a high percentage of the business for this condominium. The developer will consent to this arrangement after full disclosure.

It also appears that "one of the law firms may serve as legal counsel to the local agency and receive a retainer or other fees for legal services rendered."

The inquirer seeks an advisory opinion on the following issues:

1. Can the law firms utilize the agency for the benefit of their respective real estate purchaser clients after full disclosure?

2. Can the law firms represent the seller of the condominium units in the development referred to above if the attorneys are shareholders of the local title abstract company which may issue title policies for the benefit of the purchasers of those units? If so, is disclosure required?

3. Can one of the law firms serve as counsel to the local title abstract company?

4. Would any of the above opinions be different, if instead of buying interests in an existing title abstract company, the attorneys set up a new company?

It is our considered opinion that the first three questions clearly fall within the parameters of Opinion 513, 111 N.J.L.J. 392 (1983), as well as Opinion 495, 109 N.J.L.J. 329 (1982), where we identified the sources of conflict:

[R]eliance by purchasers of real estate of good marketable title has shifted from lawyers who examined and certified title to title insurance companies. The lawyer now plays the role of reviewing the commitment binder and obtaining or negotiating the removal of exceptions. Thus the title insurance company seeks to limit its liability while counsel for the purchaser and lender has a duty to try to expand the liability of the title company. The title insurance company agent acts as an agent for the company and binds it. If he is also an attorney representing the purchaser and lender in the transaction, he also acts for them. In all instances, he owes a duty of fidelity to each interest....

In the case presented here, each title binder which contains standard exceptions and specifically related exceptions presents an absolute conflict requiring independent evaluation in every case and, conceivably, hard negotiation; on the one hand, as set forth at the outset, to expand liability and, on the other, to limit or restrict liability. The situation presented is basically contrary to the professional standards required and inherently creative of an appearance of impropriety such that it cannot be permitted even if disclosure is made to all parties.

As to the fourth issue, namely: "Would any of the above opinions be different, if instead of buying interests in an existing title abstract company, the attorneys set up a new company?" the answer is also in the negative. We perceive no reason for changing our opinion simply because the abstract company in question is newly formed rather than by separate purchase of stock interests in the existing local title abstract company.

The second inquirer apparently is acting as a "title insurance agent" for a title insurance company. There is no specific inquiry set forth by the inquirer, but rather, the inquiry is couched in the presentation of factual argument. If we understand the inquiry correctly, the real question is whether the attorney may act as a title insurance agent with reference to policies of title insurance to be issued by that insurance company based upon the agent's abstract for and in behalf of his personal clients. It is our understanding that the attorney does not have a beneficial interest in the title company, nor does he have a minority stock interest, but is the agent for the title company in an individual proprietary capacity, apparently doing and performing the abstract work.

Again, it is our considered opinion that our Opinions 495, supra, and 513, supra, as well as the other citations referred to in said Opinions, fully and adequately answer this inquiry. The guidelines are clear, and the facts and conduct of the attorney will determine whether his activity will constitute a conflict of interest, which can be cured by a full disclosure.