Can a New York lawyer take foreclosure-case referrals from a non-lawyer company that telephoned the clients and collects a fee covering the lawyer's services?
NY State Bar Ethics Opinion 927: Foreclosure-case referrals from a non-lawyer company
Short answer: A lawyer may not enter an arrangement to accept foreclosure-case referrals from a non-lawyer corporation for a fixed monthly fee where the corporation obtained the clients by telephone solicitation and collects from the client a single fee that includes the lawyer's fee.
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.
Plain-English summary
A non-law-firm corporation proposed to refer homeowners in foreclosure to a lawyer on a non-exclusive basis. The corporation found the homeowners through public foreclosure records and contacted them by telephone, signed them to an agreement with the corporation (not the lawyer), collected a monthly payment from the client, paid the lawyer a flat $300 per matter per month, and kept the balance. The lawyer would pay the corporation nothing. The opinion concludes a lawyer should not enter the arrangement, identifying several ethical defects (and noting that whether the corporation violates Judiciary Law sections 479, 482, or 495 is a question of law beyond the committee's jurisdiction).
On fees, the opinion explains that flat fees are not prohibited, but a fee cannot be excessive under Rule 1.5(a), and there is a rebuttable presumption that a flat fee unrelated to the work performed over a long period becomes excessive; the lawyer's $300 monthly charge plus the corporation's added monthly fee are presumptively excessive absent stated justification, and fee arrangements with unsophisticated clients get closer scrutiny. On notice, Rule 1.5(b) and 22 NYCRR 1215.1 require an engagement letter or fee disclosure, which was not provided.
On solicitation, the corporation's telephone solicitation, if done by the lawyer, would violate Rule 7.3(a)(1); because Rule 5.3 makes a lawyer responsible for a non-lawyer's conduct that would violate the Rules, and Rule 8.4(a) bars doing indirectly what the lawyer cannot do directly, the arrangement would violate those rules. On fee division, the client pays the corporation a single fee that includes the lawyer's fee, which the opinion treats as the lawyer sharing a legal fee with a non-lawyer in violation of Rule 5.4(a); the corporation acts as a paid referral agent but is not one of the entities permitted to be paid for referrals under Rule 7.2(b). The opinion notes a client may separately engage and separately pay both a lawyer and a non-lawyer, but that is not the structure here. Finally, third-party payment of fees is not per se improper under Rule 1.8(f) if the client gives informed consent (as defined in Rule 1.0(j)) and the payer does not interfere, but the facts show no such informed consent.
In practice
Under this opinion, and under the New York rules as they stood at the time, the defect is the structure: a non-lawyer company that solicits clients by phone and collects a single fee covering the lawyer's services cannot be the lawyer's referral and payment channel. The opinion treats the company's solicitation as imputed to the lawyer, the bundled fee as prohibited fee sharing with a non-lawyer that is not a permitted referral source, the combined charge as presumptively excessive, and the absence of an engagement letter and informed consent as further violations. The opinion notes that a client separately engaging and separately paying a lawyer and a non-lawyer can be permissible, but distinguishes that from the single-fee structure presented.
Common questions
Q: Can a company that finds foreclosure clients by phone refer them to a lawyer for a monthly fee?
A: Not under this structure. The opinion holds the company's telephone solicitation is imputed to the lawyer under Rules 7.3(a)(1), 5.3, and 8.4(a), making the arrangement improper.
Q: Is it fee sharing if the client pays the company and the company pays the lawyer?
A: The opinion says yes in substance. Because the client's single fee to the company includes the lawyer's fee, the lawyer is sharing a legal fee with a non-lawyer in violation of Rule 5.4(a), and the company is not a referral source permitted to be paid under Rule 7.2(b).
Q: Why is the fee a problem?
A: The opinion finds the lawyer's flat monthly charge plus the company's added monthly fee presumptively excessive under Rule 1.5(a) absent justification, and notes no engagement letter was provided as Rule 1.5(b) and 22 NYCRR 1215.1 require.
Q: Can a third party ever pay the lawyer's fee?
A: Yes, under Rule 1.8(f), if the client gives informed consent (Rule 1.0(j)) and the payer does not interfere. The opinion finds no such informed consent on these facts.
Background and rules framework
The opinion applies Rule 1.5 (Model Rule 1.5) on excessive fees and engagement letters, Rule 1.8(f) (Model Rule 1.8) on third-party payment, Rule 5.3 (Model Rule 5.3) on responsibility for non-lawyer conduct, Rule 5.4(a) (Model Rule 5.4) on sharing legal fees with non-lawyers, Rule 7.2(b) (Model Rule 7.2) on permitted referral sources, Rule 7.3(a)(1) (Model Rule 7.3) on in-person and telephone solicitation, and Rule 8.4(a) (Model Rule 8.4) on violating the rules through another. Rule 1.0(j) supplies the definition of informed consent.
Citations and references
Rules of Professional Conduct:
- MR 1.5 / NY 1.5(a), 1.5(b) (excessive fee; engagement letter)
- MR 1.8 / NY 1.8(f) (third-party payment)
- MR 5.3 / NY 5.3(b) (responsibility for non-lawyer conduct)
- MR 5.4 / NY 5.4(a) (sharing legal fees with non-lawyers)
- MR 7.2 / NY 7.2(b) (permitted referral sources)
- MR 7.3 / NY 7.3(a)(1) (in-person/telephone solicitation)
- MR 8.4 / NY 8.4(a) (violation through the acts of another); NY 1.0(j) (informed consent)
Statutes and rules:
- Judiciary Law sections 479, 482, 495 (solicitation/corporate furnishing of attorneys; noted as questions of law beyond the committee's jurisdiction)
- 22 NYCRR 1215.1 (letter of engagement requirement)
Cases:
- Jacobson v. Sassower, 66 N.Y.2d 991 (1985), attorney's burden to show fee is fair and reasonable
- Blumenberg v. Neubecker, 12 N.Y.2d 456 (1963), separate engagement and payment of lawyer and non-lawyer
See also
- NY State Bar Op. 942: Referrals and undisclosed fees from a non-lawyer firm
- NY State Bar Op. 930: Arrangement between a law firm and a non-legal service provider
- NY State Bar Op. 932: Lawyers' business cards and recommendation of services
Source
- Landing page: https://nysba.org/ethics-opinion-927/