Can a Texas lawyer representing a party in a real estate deal take a fee that is a percentage of the title insurance premium paid by the title insurer?

Plain-English summary

The inquiry asked under what circumstances a lawyer representing a party to a real estate transaction may accept a fee consisting of a percentage of the title insurance premium paid by the title insurer. The Committee answered that the lawyer may accept such a fee only for services actually performed for the title company.

The Committee reasoned that any fee arrangement with the title company gives rise to an attorney-client relationship between the lawyer and the company, so the company becomes a client and the engagement is governed by all the relevant Disciplinary Rules. The fee, whether a percentage or otherwise, must be reasonable under DR 2-106. Because the lawyer now represents both the transaction party and the title company, a multiple-representation situation arises under DR 5-105(A) and (B), which require declining or withdrawing from employment if the multiple representation will, or is likely to, adversely affect the lawyer's independent judgment on behalf of a client. Under DR 5-105(C), the representation may continue if it is obvious the lawyer can adequately represent each interest and each client consents after full disclosure.

The Committee added that disclosure is required where there is a likelihood of an adverse effect on the lawyer's judgment, and that circumstances may make disclosure that the lawyer also represents the title company required at the outset or as the joint representation develops. It expressly made no interpretation of Article 9 of the Texas Insurance Code, and held, 9-0, that the percentage fee is permissible only for services actually rendered the title company, that the fee charged the company must be reasonable, and that the lawyer is bound by the usual rules of multi-client representation as applied to the particular facts.

Currency note

This opinion was issued in 1984, under the former Texas Code of Professional Responsibility, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. The Disciplinary Rules have since been amended, and Texas never adopted the ABA's Ethics 2000 framework. The closest current provisions are Texas Rule 1.04 (fees) and Rule 1.06 (conflicts of interest), with ABA analogs Model Rules 1.5 and 1.7. Subsequent rule changes 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 Texas lawyer take a percentage of the title insurance premium as a fee?

A: Per the opinion, only for services actually rendered to the title company. The Committee said an attorney may accept a fee from the title insurance company if the attorney has actually performed services on behalf of the company.

Q: Does accepting the fee make the title company a client?

A: Yes. The Committee concluded that any fee arrangement with the title company gives rise to an attorney-client relationship, so the company becomes a client and the engagement is subject to all the relevant Disciplinary Rules, including the reasonable-fee requirement of DR 2-106.

Q: What conflict rules apply to representing both the party and the title company?

A: The Committee applied DR 5-105: under (A) and (B) the lawyer must decline or withdraw if the multiple representation will or is likely to adversely affect independent judgment, and under (C) the representation may continue with full disclosure and each client's consent where the lawyer can adequately represent each interest.

Background and rules framework

The opinion interprets DR 2-106 (reasonableness of fees) and DR 5-105(A), (B), and (C) (multiple-client representation and consent after disclosure) of the former Texas Code of Professional Responsibility. The closest current provisions are Texas Rule 1.04 and Rule 1.06, with ABA analogs Model Rules 1.5 and 1.7. The analysis turns on the fee arrangement converting the title company into a client and triggering the conflict and disclosure rules. The Committee made no interpretation of Article 9 of the Texas Insurance Code.

Citations and references

Rules of Professional Conduct:

• MR 1.5 (reasonableness of fees); MR 1.7 (concurrent conflicts of interest), as the modern analogs
• DR 2-106, DR 5-105(A), DR 5-105(B), DR 5-105(C) (former Texas Code of Professional Responsibility)

Statutes:

• Article 9 of the Texas Insurance Code (referenced; the Committee made no interpretation of it)

See also

• TX Ethics Op. 448: Representing Both Seller and Buyer in a Real Estate Transaction
• TX Ethics Op. 423: Representing a Bank While Suing Its Affiliate Under a Common Holding Company
• TX Ethics Op. 409: Charging Interest on Unpaid Attorney's Fees

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-408/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_408.pdf

Original opinion text

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

QUESTION PRESENTED

Under what circumstances may an attorney representing a party to a real estate transaction accept a fee consisting of a percentage of the title insurance premium from the title insurer?

DISCUSSION

An attorney may accept a fee from the title insurance company if the attorney has actually performed services on behalf of the company.

Any fee arrangement with the title company would give rise to an attorney-client relationship between the lawyer and the title company. The relationship would therefore be embraced by all the relevant disciplinary rules. In this regard, the fee received by the attorney must be reasonable under Disciplinary Rule (DR) 2-106, whether based on a percentage or some other mode of calculation.

Since the arrangement causes the title company to become a client of the attorney, a situation of multiple client representation is presented. Disciplinary Rule 5-105(A) and (B) provides that an attorney shall decline employment or withdraw from employment if the multiple representation will, or is likely to, adversely affect the exercise of the attorney's independent judgment on behalf of a client. On the other hand, such employment may continue, despite DR 5-105(A) and (B), if it is obvious that the lawyer can adequately represent each interest, and each client consents after full disclosure of the possible effects on the lawyer's representation of the client interest. DR 5-105(C).

Disciplinary Rule 5-105 requires disclosure if there is a likelihood of an adverse effect on the exercise of the attorney's judgment. If the attorney sees such a likelihood, he should, of course, disclose it, but circumstances may exist where a disclosure that the lawyer is also representing the title company is not only advisable, but required at the outset or when the joint representation requires it.

This opinion makes no interpretation of Article 9 of the Texas Insurance Code.

An attorney representing a party to a real estate sale may accept a percentage of the title insurance premium only for services actually rendered the title company. The attorney becomes the attorney of the title company; the fee charged the title company should therefore be reasonable.

The lawyer should make such disclosures to all his clients in the transaction as the rules and statutes may require, depending on the facts in each situation, and is bound by the usual and customary rules of multi-client representation as they apply to the particular facts at hand. (9-0.)

CONCLUSION

An attorney representing a party to a real estate sale may accept a percentage of the title insurance premium only for services actually rendered the title company. The attorney becomes the attorney of the title company; the fee charged the title company should therefore be reasonable.

The lawyer should make such disclosures to all his clients in the transaction as the rules and statutes may require, depending on the facts in each situation, and is bound by the usual and customary rules of multi-client representation as they apply to the particular facts at hand. (9-0.)

Tex. Comm. On Professional Ethics, Op. 408 (1984)