NYSBA 1992-03-19

If a borrower pays the lender's lawyer, must the lawyer tell the borrower he is also being paid by the title insurer, and can he keep both fees?

Short answer: The opinion concluded that the lender's lawyer must disclose to the borrower, who pays the fee, that the lawyer is also compensated by the title insurer at closing and how much, and may retain both fees if the lender consents and the total is not excessive.

Disclaimer: Advisory only. Not binding precedent.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NY State Bar Ethics Opinion 626: Disclosing fees when the borrower pays the lender's lawyer

Short answer: The opinion concluded that a law firm representing a lender, whose fee is paid by the borrower, must disclose to the borrower that the firm also acts for and is compensated by the title insurer at the closing, and the amount of that compensation, and may retain the fees from both the borrower and the title insurer so long as the lender-client consents and the total is not excessive.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

View original opinion

Plain-English summary

A law firm represented a lender in a real estate transaction. The borrower paid the firm's fee for that representation and also authorized the lender to obtain title insurance, which the firm ordered. The firm received an additional fee directly from the title insurance company, and a firm attorney attended the closing for both the lender and the title insurer. The lender knew of and consented to the firm's work for the title insurer and the compensation it received. The firm asked whether it had to disclose the title-insurer fee to the borrower, and whether it could keep both fees with the lender's consent.

On the first question, the committee held that the firm must tell the borrower that it will act for both the lender and the title insurer at the closing and the amount of the title-insurer fee. Although the firm has no attorney-client relationship with the borrower and the borrower usually cannot negotiate the fee, DR 2-106(A) bars charging or collecting an excessive fee, and a non-client who pays the fee is entitled to be charged an amount that is not impermissible. The committee reasoned that the excessive-fee restriction can work only if the party with the economic interest in the fee has enough information about the lawyer's total compensation to judge whether it is excessive. Because the title-insurer compensation was not a client confidence or secret protected by DR 4-101, DR 2-106 compelled disclosure of that amount to the borrower.

On the second question, the committee relied on N.Y. State 576 (1986) and N.Y. State 351 (1974): a lawyer acting as the title insurer's closer who also represents a party must credit the client with the amount received from the title insurer unless the client consents otherwise. Here the lender consented. That the borrower pays the agreed fee does not affect, as an ethical matter, the firm's ability to set the appropriate total compensation with its client, so long as the total is not excessive. The committee noted, as it had in N.Y. State 576, that total compensation becomes excessive to the extent the title insurer pays for services duplicative of those the lawyer would render the client anyway, and that it did not pass on any questions of law under RESPA, the New York Insurance Law, or other provisions.

Currency note

This opinion was issued in 1992, under New York's former Code of Professional Responsibility, which New York replaced with the Rules of Professional Conduct in 2009. The fee and third-party-compensation provisions cited here have since been recast in Rules 1.5 and 1.8. 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: Must the lender's lawyer tell the borrower about a fee paid by the title insurer?

A: Yes. The committee held that, because the borrower pays the lawyer's fee and DR 2-106(A) bars an excessive fee, the firm must disclose to the borrower that it acts for the title insurer at closing and the amount of that compensation.

Q: Is the title-insurer fee a client confidence the lawyer cannot reveal?

A: No. The committee found nothing in the facts suggesting the fact or amount of the title-insurer compensation was a client confidence or secret protected by DR 4-101, so disclosure was required.

Q: Can the firm keep both the borrower's payment and the title insurer's fee?

A: Yes, if the lender-client consents and the total compensation is not excessive. The committee applied N.Y. State 576 and 351, under which the client may consent to the lawyer retaining the title-insurer fee rather than crediting it.

Background and rules framework

The opinion interpreted DR 2-106(A) (no excessive fee) and EC 2-17 (reasonable fee), holding the limit applies even where a non-client pays, together with DR 4-101 (confidences and secrets) and DR 5-107(A) (compensation from one other than the client, with the client's consent). The closest Model Rule analogues are Rule 1.5 (fees) and Rule 1.8(f) (compensation from a third party).

Citations and references

Rules of Professional Conduct:

MR 1.5 (fees; reasonableness)
MR 1.8(f) (compensation from a third party)
NY DR 2-106(A); DR 4-101; DR 5-107(A); EC 2-17

Statutes:

Real Estate Settlement Procedures Act, 12 U.S.C. section 2601 et seq. (noted; not decided)
N.Y. Insurance Law section 6409(d) (noted; not decided)

Other opinions cited:

N.Y. State 576 (1986): crediting the title-insurer fee and the excessive-fee limit
N.Y. State 351 (1974): lawyer as title company closer and counsel in the same transaction

Source

Landing page: https://nysba.org/opinion-626/