Can a lawyer who represents lenders or borrowers in real estate deals pay the firm's employees to steer those clients to a title insurance agency the lawyer owns?
Apply this to your situation
This page answers the general question as of 2000. Ezel answers yours: whether it's allowed on your facts, under the current New York Rules of Professional Conduct, with citations.
Plain-English summary
A lawyer who represents mortgage lenders and brokers in real estate transactions, and who owns a title company without running its day-to-day insurability decisions, proposed to pay firm employees monetary incentives based on their success in soliciting lenders or borrowers to use that title company in deals where the firm represented the lender. The committee concluded the arrangement is impermissible under DR 5-101(A).
The committee grounded its answer in N.Y. State 595 (1988) and N.Y. State 621 (1991), which held that a lawyer may not represent a party in a real estate transaction while acting as a principal in the title agency engaged for that transaction. The conflict arises because the lawyer-owned agency, in preparing a title report or acting as the underwriter's agent, in effect negotiates title exceptions and insurability "with itself" while representing a party. That conflict can be cured by client consent only when the agency performs the purely ministerial service of a title search.
The committee held that if the lawyer cannot make the referral directly, the lawyer also cannot pay employees to make it. It noted that the 1999 amendment replacing DR 5-101(A)'s "obviousness" test with the "disinterested lawyer" standard did not change the analysis. It added that the opinion does not disturb a lawyer's general ability to run a non-legal business, and addressed only this specific arrangement; the referral to a lawyer-owned title agency in a deal the firm handles is barred regardless of any party's consent. The committee noted that federal and state statutes such as RESPA and the Insurance Law might also bear on the proposal but were outside its jurisdiction.
Currency note
This opinion was issued in 2000, under New York's former Code of Professional Responsibility, which New York replaced with the Rules of Professional Conduct in 2009. 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 Treat this page as historical context, not current guidance.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 lawyer pay employees to refer clients to the lawyer's own title agency?
A: The opinion concluded no. Because the lawyer could not make the referral directly without an impermissible conflict under DR 5-101(A), the lawyer also may not compensate employees to make it.
Q: Does client consent fix the problem?
A: Not where the title agency does more than a ministerial title search. The opinion held the dual-role conflict is not consentable when the agency prepares the title report or acts as the underwriter's agent, regardless of any party's consent.
Q: Did the 'disinterested lawyer' amendment change the result?
A: No. The committee concluded that replacing the "obviousness" test with the "disinterested lawyer" standard in DR 5-101(A) left the essential analysis unchanged.
Background and rules framework
The opinion interpreted DR 5-101(A) (personal-interest conflicts and the limits on consent) and DR 5-105(C) (the consent test), together with EC 5-2, of New York's former Code of Professional Responsibility. The Model Rule analogue is Rule 1.7 (concurrent conflicts of interest, including personal-interest conflicts and the limits of client consent). New York replaced the Code with the Rules of Professional Conduct in 2009; the DR numbers cited here are historical.
Citations and references
Rules of Professional Conduct:
- MR 1.7 (concurrent conflicts of interest)
- NY DR 5-101(A); DR 5-105(C)
Statutes:
- Real Estate Settlement Procedures Act of 1974, 12 U.S.C. section 2601 et seq. (noted as outside the committee's jurisdiction)
Other opinions cited:
- N.Y. State 595 (1988) and N.Y. State 621 (1991): lawyer-owned title agency conflict; ministerial work only
- N.Y. State 583 (1987): a lawyer may engage in a non-legal business consistent with the rules
See also
- NY State Bar Op. 738: Referrals to a spouse-owned title abstract company
- NY State Bar Op. 753: Lawyer-owned mortgage and title company in one deal
- NY State Bar Op. 733: Profit-sharing limits for non-lawyer employees
Source
- Landing page: https://nysba.org/opinion-731/
Get today's answer for your situation
You just read a 2000 opinion on this question. Ezel checks the current New York Rules of Professional Conduct and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the rules it relies on.