Can I pay a marketing agency about $200 per title order a mortgage broker sends me, and build that cost into my closing fee?

Plain-English summary

The inquiring attorney concentrates in real estate purchases and refinances. A mortgage broker proposed a three-party arrangement: a digital marketing agency would advertise the broker's business at no cost; the broker would forward title orders to the lawyer for borrowers' applications; and the lawyer would pay the marketing agency about $200 for each title order received from the broker. The lawyer stated the $200 is "built" into the settlement-agent fee at the borrower's closing, and that the agency would work on a 1099 independent-contractor basis. The lawyer asked whether the arrangement is permissible.

The panel concluded it is not. Rule 7.2(c) prohibits a lawyer from giving anything of value to a person for recommending the lawyer's services, subject to four exceptions (permitted advertising costs, the usual charges of a legal service plan or not-for-profit referral service, paying for a law practice under Rule 1.17, and certain non-exclusive reciprocal referral agreements). The panel found none of the exceptions applies. Although the $200 is paid to the marketing agency rather than directly to the broker, the payment is for the broker's benefit: the lawyer effectively pays the broker's advertising costs in exchange for title orders, which the panel called a clear violation of Rule 7.2(c).

The panel added two further points. It stated that "building" the $200 into the lawyer's settlement fee may violate the fee-reasonableness obligation of Rule 1.5(a). And it stated it lacked jurisdiction to address whether the arrangement violates the federal Real Estate Settlement Procedures Act (RESPA).

In practice

Under this opinion, routing a referral payment through a third party does not take it outside Rule 7.2(c). The panel held that where a lawyer pays a marketing agency for the mortgage broker's benefit in exchange for the broker's title-order referrals, the lawyer is effectively paying for referrals in violation of Rule 7.2(c), and none of the rule's four exceptions applies. The panel further stated that building the payment into the settlement fee may implicate Rule 1.5(a)'s reasonableness requirement, and it declined the RESPA question as outside its jurisdiction.

Common questions

Q: Does paying a marketing company instead of the referral source avoid Rule 7.2(c)?

A: No. The panel concluded that because the payment to the marketing agency is for the mortgage broker's benefit, the lawyer effectively pays for the broker's referrals, which violates Rule 7.2(c).

Q: Do any Rule 7.2(c) exceptions cover this arrangement?

A: No. The panel identified the four exceptions (permitted advertising costs, usual charges of a legal service plan or not-for-profit referral service, paying for a law practice under Rule 1.17, and certain non-exclusive reciprocal referral agreements) and concluded none applies.

Q: Is there a problem with building the payment into the closing fee?

A: Possibly. The panel stated that "building" the $200 into the lawyer's settlement fee may violate the obligation of reasonableness of fees under Rule 1.5(a).

Q: Did the panel decide the RESPA question?

A: No. The panel stated it is without jurisdiction to respond to whether the arrangement violates the Real Estate Settlement Procedures Act.

Background and rules framework

The opinion applies Rule 7.2 (Model Rule 7.2, advertising), specifically Rule 7.2(c), which bars giving anything of value for recommending a lawyer's services subject to four enumerated exceptions, and references Rule 1.5 (Model Rule 1.5, fees), whose paragraph (a) requires that a lawyer's fee be reasonable. The panel treated the third-party payment as a payment for the broker's benefit and applied Rule 7.2(c) accordingly, and it flagged Rule 1.5(a) as to the settlement fee. It expressly declined to reach the RESPA question as outside the Rules of Professional Conduct.

Citations and references

Rules of Professional Conduct:

• MR 7.2 (advertising; paying for recommendations under 7.2(c) and its four exceptions)
• MR 1.5 (fees; reasonableness under 1.5(a))
• RI RPC 7.2, RI RPC 1.5

Statutes:

• Real Estate Settlement Procedures Act (RESPA), referenced as outside the panel's jurisdiction; not quoted.

Cases:

• None cited.

Other opinions cited:

• None cited.

See also

• RI EAP Op. 2019-03: For-Profit Internet Lead Service Violates Rule 7.2(c)
• RI EAP Op. 2005-01: Online Lawyer-Matching Website and Flat-Fee Advertising

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2019-04.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Rhode Island Supreme Court
Ethics Advisory Panel Op. 2019-04
Issued October 10, 2019

FACTS

The inquiring attorney has a private law practice and concentrates in real estate matters, including real estate purchases and refinance transactions. A mortgage broker has solicited the inquiring attorney's participation in the following arrangement that involves the inquiring attorney, the mortgage broker, and a digital marketing agency. Under the proposal, the digital marketing agency agrees to advertise the mortgage broker's business at no cost; the mortgage broker agrees to forward title orders to the inquiring attorney for borrowers' applications; and the inquiring attorney agrees to forward approximately two hundred dollars to the digital marketing agency for each title order he/she receives from the mortgage broker. The inquiring attorney states that the amount he/she pays to the agency for each title order "is built" into his/her settlement agent fee at the borrower's closing. He/she further states that the relationship between the digital marketing agency and the inquiring attorney would be on a 1099 basis, the agency being an independent contractor.

ISSUE PRESENTED

The inquiring attorney asks whether the proposed arrangement is permissible under the Rules of Professional Conduct.

OPINION

The arrangement violates Rule 7.2(c) and is therefore impermissible.

REASONING

Rule 7.2(c) states

(c) A lawyer shall not give anything of value to a person for recommending the lawyer's services except that a lawyer may
(1) pay the reasonable costs of advertisements or communications permitted by this Rule;
(2) pay the usual charges of a legal service plan or a not-for-profit lawyer referral service;
(3) pay for a law practice in accordance with Rule 1.17; and
(4) refer clients to another lawyer or a nonlawyer professional pursuant to an agreement not otherwise prohibited under these Rules that provides for the other person to refer clients or customers to the lawyer, if
(i) the reciprocal referral agreement is not exclusive, and
(ii) the client is informed of the existence and nature of the agreement.

With four exceptions, none of which apply to this inquiry, Rule 7.2(c) prohibits a lawyer from paying others to recommend his or her legal services. In the proposed arrangement in this inquiry, the mortgage broker forwards a title order to the inquiring attorney. In return, the inquiring attorney pays two hundred dollars to a third party, the digital marketing company. Although the two hundred dollar payment is not made directly to the mortgage broker, the payment is for the broker's benefit. The inquiring attorney effectively pays the mortgage broker's costs of advertising in exchange for title orders. The proposed arrangement presents a clear violation of Rule 7.2(c).

The Panel further believes that "building" the two hundred dollar payment into the inquiring attorney's settlement fee may violate the obligation of reasonableness of fees under Rule 1.5(a). Finally, the Panel is without jurisdiction to respond to the inquiring attorney's inquiry about whether the proposed arrangement violates the Real Estate Settlement Procedures Act (RESPA).