Can a lawyer accept a referral fee from a mortgage broker for sending a real estate client to that broker?
NY State Bar Ethics Opinion 667: Referral fee from a mortgage broker
Short answer: The opinion concluded that a lawyer may accept a referral fee from a mortgage broker for referring a real estate client only if the client consents after full disclosure, the lawyer remits the fee to the client on request, the aggregate fees the lawyer receives are not excessive, and the lawyer exercises independent professional judgment for the client.
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 lawyer asked whether he could accept a fee from a mortgage broker for referring a real estate client to that broker. The committee first stressed that it does not opine on questions of law and assumed the arrangement was lawful; it cautioned that if the arrangement violated any law (for example, RESPA's bar on kickbacks and unearned fees for referrals incident to a federally related mortgage loan), it would for that reason be unethical. On the ethics, the committee located the analysis in Canons 2 and 5. EC 2-21 and DR 5-107(A)(2) bar a lawyer from accepting anything of value incident to the representation from someone other than the client without the client's consent after full disclosure. Because the lawyer would be taking a thing of value (the referral fee) from a third party (the broker) incident to representing the client in a real estate purchase, the lawyer must obtain the client's consent after full disclosure.
The committee specified what full disclosure must include: the entire arrangement with the mortgage broker, how the mortgage the broker offers compares with other available mortgage types known to the lawyer, and other alternative services available to the client. Drawing on N.Y. State 595 (1988), 461 (1977), and 107 (1969/1970), it held the lawyer must also remit the referral fee to the client if the client so desires, on the principle that funds the lawyer secures by virtue of the client's trust should be credited to the client. Even with consent, the lawyer may not retain amounts that in the aggregate would be an excessive fee under DR 2-106(A).
Finally, the committee invoked Canon 5's command (EC 5-1) that the lawyer exercise independent professional judgment solely for the client's benefit, free of compromising influences. It warned that the lawyer's desire to earn the referral fee in addition to legal fees could taint advice on whether the broker's mortgage terms serve the client's best interests, and that if the lawyer concludes the recommended mortgage is not in the client's interest, the lawyer must have no hesitancy in advising the client against it. Subject to those four conditions, the committee answered the question in the affirmative.
Currency note
This opinion was issued in 1994, 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 accept a referral fee from a mortgage broker?
A: The opinion concluded yes, but only if the client consents after full disclosure, the lawyer remits the fee to the client on request, the aggregate fees are not excessive, and the lawyer exercises independent professional judgment.
Q: What does full disclosure require?
A: The opinion concluded the lawyer must disclose the entire arrangement with the broker, how the broker's mortgage compares with other available mortgage types the lawyer knows of, and other alternative services available to the client.
Q: Does the lawyer get to keep the referral fee?
A: The opinion concluded the lawyer must remit the referral fee to the client if the client so desires, and in any event may not retain amounts that together would be an excessive fee under DR 2-106(A).
Background and rules framework
The opinion interpreted Canons 2 and 5, DR 5-107(A)(2) (accepting value from a third party), DR 2-106(A) (excessive fees), EC 2-21, and EC 5-1 of New York's former Code, and noted RESPA (12 U.S.C. sections 2601 et seq.) as a possible legal bar. The Model Rule analogues are Rule 1.8(f) (compensation from a third party), Rule 1.7 (personal-interest conflicts), and Rule 1.5 (fees). 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 (conflict of interest: current clients)
- MR 1.8(f) (compensation from one other than the client)
- MR 1.5 (fees)
- NY DR 2-106(A); DR 5-107(A)(2); EC 2-21; EC 5-1
Statutes:
- RESPA, 12 U.S.C. sections 2601 et seq. (kickbacks and unearned referral fees)
Other opinions cited:
- N.Y. State 595 (1988); N.Y. State 461 (1977); N.Y. State 107 (1969): disclosure, consent, and remittal for referral fees
See also
- NY State Bar Op. 682: Accepting a referral fee from an investment advisor
- NY State Bar Op. 671: Referral fee from an insurance company
- NY State Bar Op. 1043: Referral fee from a real estate broker's commission
Source
- Landing page: https://nysba.org/opinion-667/