Can a lawyer arrange for real estate brokers to steer title-company closing work to the lawyer in exchange for the lawyer giving the brokers free legal advice?

Plain-English summary

The committee was asked whether a lawyer could enter arrangements in which real estate brokers direct the title companies they work with to require that all legal documents for the brokers' closings be prepared by that lawyer, with the lawyer in return providing other services to the brokers, including free legal advice on the brokers' real estate transactions. The committee concluded the described practice of directing business to the attorney, coupled with an agreement to provide gratis services to the broker, would not be ethical, and noted (without deciding professional-liability questions) its concern about the competing duties of loyalty among the parties to the transaction.

The committee walked through the parties' roles: the listing broker is the seller's agent and owes the seller a fiduciary duty, yet it is the listing broker who directs the title company to employ the attorney and who receives the free advice; the buyer and seller often have no independent counsel and may be unaware of how the attorney was selected, even though the documents are drawn for their benefit. The committee was particularly concerned the buyer could be misled into believing the attorney represented the buyer's interests. It tied the problems to specific rules: Rule 16-104(B) (giving the client information needed for informed decisions) and Rule 16-102(A) (abiding by the client's decisions), neither of which the attorney could satisfy without an opportunity to inform the parties; Rule 16-106(A) confidentiality, hard to preserve while simultaneously advising the broker; and Rule 16-107(A) on multiple clients with adverse interests, where the committee questioned whether such an attorney could provide the requisite loyalty. It cited Atlantic Richfield Co. v. Sybert for the kind of full disclosure required when one attorney serves both buyer and seller, including explaining the pitfalls and the advantages of independent counsel.

The committee added that Rule 16-504(C) directs that a lawyer not be regulated by a non-client, and doubted the attorney could avoid being influenced by the broker on whom continued business depends. Most directly, Rule 16-702(C) prohibits giving anything of value to a person for recommending the lawyer's services, so providing free advice to the broker who directed the work is prohibited. The committee acknowledged a lawyer may, with a client's consent, provide services for another party's use (Rule 16-203(A)), for example furnishing a title evaluation at the seller's behest for the buyer's use, while noting that work product intended for a third party raises duties to that third party. It concluded a lawyer selected to prepare closing documents should disclose any relationship with the other parties and determine, in each transaction, who the client is, with disclosure that is full, complete, and timely.

Currency note

This opinion was issued in 1992, under the New Mexico Rules of Professional Conduct effective January 1, 1987 (SCRA 1986, Rules 16-102, 16-104, 16-106, 16-107, 16-203, 16-504, and 16-702). It predates the State Bar of New Mexico's November 3, 2008 revisions to those Rules (the New Mexico adoption of the ABA Ethics 2000 changes). 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 give a broker free legal advice in exchange for closing referrals?

A: No. The committee concluded that providing free services to a broker in return for directing work to the lawyer is giving something of value for recommending the lawyer's services, prohibited by Rule 16-702(C).

Q: What is the conflict problem when a broker selects the closing lawyer?

A: The committee concluded the buyer and seller may have no voice in the selection and could be misled about whom the lawyer represents, while the lawyer's loyalty and independent judgment are compromised by dependence on the referring broker under Rules 16-107(A) and 16-504(C).

Q: Can one lawyer prepare closing documents touching both buyer and seller at all?

A: The committee concluded a lawyer may, with a client's consent, provide services for another party's use under Rule 16-203(A), but must give full, complete, and timely disclosure of any relationships and determine who the client is in each transaction.

Q: What kind of disclosure did the committee describe as sufficient?

A: The committee endorsed the disclosure described in Atlantic Richfield Co. v. Sybert, which requires explaining the lawyer's relationship to the other party, the pitfalls of the transaction, any limits on the representation, and the advantages of retaining independent counsel.

Background and rules framework

The opinion applied the duty to inform the client and abide by the client's decisions (Rules 16-104 and 16-102, corresponding to Model Rules 1.4 and 1.2), confidentiality (Rule 16-106, Model Rule 1.6), the conflict rule for multiple clients (Rule 16-107, Model Rule 1.7), the bar on a third party regulating the lawyer's judgment (Rule 16-504, Model Rule 5.4), the prohibition on paying for recommendations (Rule 16-702, Model Rule 7.2), and the evaluation-for-use-by-third-persons rule (Rule 16-203, Model Rule 2.3). It read these against the loyalty principle in the conflicts commentary and the disclosure standard from the cited Maryland decisions.

Citations and references

Rules of Professional Conduct:

• Rule 16-104(B) (client information); Rule 16-102(A) (client decisions); Rule 16-106(A) (confidentiality); Rule 16-107(A) (conflict; multiple clients); Rule 16-203(A) (evaluation for use by third persons); Rule 16-504(C) (professional independence); Rule 16-702(C) (payments for referrals)

Cases:

• Atlantic Richfield Co. v. Sybert, 456 A.2d 20 (Md. 1983): full disclosure required when one attorney serves both buyer and seller
• Crest Inv. Trust, Inc. v. Comstock, 327 A.2d 891 (Md. Ct. App. 1974): standard for full disclosure of conflicting interests
• Van Orman v. Nelson, 78 N.M. 11 (1967), rev'd on other grounds, 80 N.M. 119 (1969): a lawyer's duty to the client is no less exacting than a broker's to the principal

Other authorities cited:

• National Association of Realtors Code of Ethics and Standards of Practice, Articles 7, 16, 17
• NMREC Rule 18 (effective 4/1/92)

See also

• NM Ethics Op. 1990-3: Concurrent Conflicts of Interest

Source

• Landing page: https://www.sbnm.org/Leadership/Committees/Ethics-Advisory-Committee/Ethics-Advisory-Opinions
• Original PDF: https://www.sbnm.org/Portals/NMBAR/AboutUs/committees/Ethics/1990-92/1992-1.pdf

Original opinion text

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

Advisory Opinion 1992-1
Attorney has asked the Advisory Opinions Committee to consider certain circumstances in which third parties might direct
business to attorney in connection with the closing of real estate transactions through a title company. In particular, the
Committee is asked to determine whether it would be ethical for the attorney to enter into representation arrangements
with real estate brokers such that the real estate brokers direct the title companies with which the brokers do business to
require that all legal documents needed in connection with the brokers' closings are to be prepared by the attorney. In
return for such referrals, the attorney provides other services for the real estate brokers, including, in some instances,
undertaking to provide free legal advice to the brokers concerning any real estate transactions with respect to which the
attorney is engaged to prepare the requisite documentation.
The Committee is of the opinion that the described practice of directing business to the attorney, coupled with an
agreement to provide gratis services to the broker would not be ethical. Moreover, while the Committee does not consider
issues of professional liability, the Committee is concerned that such issues might arise due to the respective interests of
the various parties to the real estate transactions and the potentially competing duties of loyalty on the part of the
attorney.
The question posed is complex. Its answer devolves upon the attorney's obligations and responsibilities with respect to
the multiple parties to such transactions. The roles of these parties may be more or less distinct depending upon the
complexity of the particular real estate transaction and the relative sophistication of the parties. The Committee observes
that most buyers and sellers of real property rely upon the integrity of their respective brokers, and upon the title company,
to assure that their interests are considered and that they are not often represented by independent counsel at closing.
The listing broker is the agent for the seller and the listing broker owes a fiduciary duty to his or her principal, the seller. In
the context of the question before the Committee, it is the listing broker who will have directed the title company to employ
the attorney for all of that broker's closings and it is the listing broker who will be receiving free advice or other services
from the attorney. Typically, the selling broker is a subagent of the seller, though, with proper disclosure, the selling broker
may act as the buyer's agent. In turn, it is the title company's business to undertake the research needed to insure the title
when requested and the title company undertakes to determine which documentation is necessary for an insurable title
and to serve as a neutral closing agent pursuant to the terms of the parties' purchase agreement.
The attorney who prepares the requisite documentation to close the transaction is, under the facts of the instant question,
brought in by the title company at the direction of the listing broker. The principals to the transaction, the buyer and seller
(who may be unaware of the selection process), have had no voice in the selection of the attorney, yet the documents
drawn should be in most cases for their benefit and protection. The attorney's fees will be paid by either the buyer or the
seller or they may have agreed to share that cost.
Of particular concern to the Committee is the potential that the buyer may be led to the mistaken belief that the buyer's
interests are represented by the attorney who has drawn the documents. Where the title company, an apparently neutral
party, has selected the attorney at the direction of the listing broker who represents the seller, this potential is likely to be
realized absent careful prior disclosure to the parties.
An attorney's first duty is to his or her client. SCRA 1986, 16-104(B) (Repl. Pamp. 1991) requires that the client be given
the information necessary to enable the client to make informed decisions concerning his or her representation by the
attorney. Similarly, rule 16-102(A) directs that the attorney shall abide by the client's decisions concerning the
representation. Quite apart from attempts to determine whether the attorney represents the buyer or the seller, in the
circumstances presented it does not appear that the attorney will have had an opportunity to apprise either the buyer or
the seller of the information necessary to permit an informed decision.
A client's confidentiality shall be inviolate. SCRA 1986, 16-106(A). This could prove difficult for an attorney who is
simultaneously providing advice to the listing broker and preparing the documentation for the buyer and seller at the
direction of the title company unless all of their interests are congruent. Where there are multiple clients, an attorney may
not represent such clients where the representation of one will be directly or substantially adverse to another "unless: (1)
the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2)
each client consents after consultation." SCRA 1986, 16-107(A). Loyalty to the client is an essential element of the

attorney's relationship with the client. See SCRA 1986, 16-107 cmt. The Committee questions whether an attorney who
receives business through the title company at the direction of a broker who is also a party to the transaction, where the
broker receives services from the attorney, is in a position to provide the requisite loyalty to either the buyer or the seller
and to inform them fully concerning their respective rights.
In Atlantic Richfield Co. v. Sybert, 456 A.2d 20 (Md. 1983), the Court declined to find a conflict where the buyer and seller
to a real estate transaction were both clients of the same attorney and the attorney's chief duty was to furnish a channel of
communication between the parties. The attorney had disclosed to each party his relation to the other and had acted with
the consent of both. In considering the requirement of full disclosure the Court stated:
"Full disclosure requires the attorney not only to inform the prospective client of the attorney's relationship
to the seller, but also to explain in detail the pitfalls that may arise in the course of the transaction which
would make it desirable that the buyer have independent counsel. The full significance of the
representation of conflicting interests should be disclosed to the client so that [the client] may make an
intelligent decision before giving his [or her] consent. If the attorney cannot properly represent the buyer
in all aspects of the transaction because of [the attorney's] relationship to the seller, full disclosure
requires that [the attorney] inform the buyer of the limited scope of [the attorney's] intended representation
of the buyer's interests and point out the advantages of the buyer's retaining independent counsel."
Id. at 24-25, quoting Crest Inv. Trust, Inc. v. Comstock, 327 A.2d 891, 905 (Md. Ct. App. 1974)) emphasis omitted;
bracketed words added to avoid stereotypical language).
While adequate disclosure and informed consent will vary depending upon the particular facts of each transaction, the
Committee believes the type of disclosure described by the Maryland court constitutes the full disclosure contemplated by
the applicable provisions of our Code of Professional Responsibility.
Concomitant with the attorney's duty of loyalty to his or her client is the directive that the attorney not allow himself or
herself to be directed or regulated by a non-client. SCRA 1986, 16-504(C). Even if the attorney were able to provide full
disclosure to all parties and to receive informed consent from them, it is unlikely that the attorney would not be influenced
in representation of the buyer or the seller by the interests of the broker to whom the attorney must be responsive in order
to continue to receive business.
The rules are also specific in prohibiting an attorney from giving anything of value to a person in exchange for
recommending the attorney's services. SCRA 1986, 16-702(C). In the instant situation, the attorney would be prohibited
from providing free advice to the broker who has directed the title company to utilize the attorney's services. Of course,
the attorney may represent one of the parties to the transaction and undertake, on behalf of that party and with that party's
consent, to provide services to another party to the transaction. See SCRA 1986, 16-203(A). Thus an attorney may, at the
behest of the seller, provide an evaluation of title for the use of the buyer. However, when the attorney's work product is
intended for the use or information of a third party, questions arise concerning the attorney's duty to such third party. See
SCRA 1986, 16-203 cmt.
In the judgment of the Committee, an attorney selected to prepare the documents needed to close a real estate
transaction should disclose any relationship with the other parties to the transaction and determine which of the parties is
his or her client within the context of each such transaction. Such disclosure must be full, complete and timely. The spirit
of the Rules of Professional Conduct requires diligent adherence to the avoidance of conflict and of loyalty to one's client
untrammeled by the dictates of third parties whose interests may influence the attorney's exercise of independent
judgment on behalf of his or her client.
1 It is beyond the purview of the Committee to consider the actions of real estate professionals. However, the Committee
observes that real estate brokers are governed by similar principles. The National Association of Realtors Code of Ethics
and Standards of Practice ("Realtors' Code") sets forth those standards. Article 7 of the Realtors' Code states "In
accepting employment as an agent, the [broker] pledges himself (sic) to protect and promote the interests of the client.
This obligation of absolute fidelity to the client's interests is primary, but it does not relieve the [broker] of the obligation to
treat fairly all parties to the transaction." New Mexico has concluded that the duty owed by an attorney to his or her client

is no less exacting than that owed by a real estate broker to his or her principal. Van Orman v. Nelson, 78 N.M. 11 (1967),
rev'd on other grounds, 80 N.M. 119 (1969).
2 Just as an attorney who perceives a conflict will recommend that other counsel be obtained, the Realtors' Code, Article
17, in part, requires that a broker "... shall recommend that legal counsel be obtained when the interest of any party to the
transaction requires it."
3 Article 16 of the Realtor's Code. Standard of Practice 16--2, appears to require that the real estate broker make
appropriate disclosure of benefits received from other professionals whom the broker has recommended. "When acting as
an agent or subagent, the [broker] shall disclose to a client or customer if there is any financial benefit or fee the [broker]
or the [broker's] firm may receive as a direct result of having recommended real estate products or services..." Similarly,
the New Mexico Real Estate Commission requires that an agent obtain written authority from his or her principal which
outlines the scope of the agent's authority and that such authority be disclosed to the other party. NMREC Rule 18
(effective 4/1/92). While beyond the purview of this Committee, it appears that disclosure of the "scope of authority" would
include whether the agent may select or contract with counsel on behalf of the principal.