Can a bank charge loan applicants a fee for mortgage documents its salaried in-house lawyer prepares when the bank keeps the whole fee?

Plain-English summary

The question (PEC No. 91-12) was whether the Disciplinary Rules permit an arrangement under which a bank charges loan applicants a fee for the preparation of mortgage loan documents by an in-house lawyer who is paid a salary by the bank and receives no part of the applicants' fees. The bank had been preparing FNMA-compliant loan documents and having them approved by outside counsel; it now proposed to have its salaried in-house attorney prepare the application documents (without advising the applicant about the transaction) and to charge applicants a fee for that work.

The Committee started by recognizing that a lawyer may properly work full time for a corporation, render legal services to it, and assist in providing nonlegal services to its customers. The problem was the fee. Under Rule 5.04(a), a corporation that employs a lawyer may not charge for the lawyer's services a fee that it retains in whole or in part, because Rule 5.04(a) bars sharing legal fees with a nonlawyer.

Applying that rule, the Committee reasoned that the loan application belongs to the applicant, not the bank, so even though the in-house lawyer gives the applicant no legal advice, preparing the applicant's loan documents is itself a legal service for the applicant if the applicant is specifically billed for it. A fee the applicant pays the bank specifically for the lawyer's document preparation is therefore a fee for legal services, and it is contrary to Rule 5.04(a) for the lawyer to do the work while the bank retains all of it. The Committee cited Opinion 417 (1984), which reached a similar conclusion under the predecessor DR 3-102(A) about a collection agency retaining fees for a lawyer's services. The Committee then drew the line: the conclusion would not apply if the bank did not charge a fee specifically for the lawyer's document preparation. A blanket document-processing fee covering lawyer and nonlawyer personnel, copying, delivery, and the like, or the bank's ordinary loan fees and interest income, does not involve sharing legal fees and does not violate Rule 5.04(a).

Currency note

This opinion was issued in 1993, under the Texas Disciplinary Rules of Professional Conduct that took effect January 1, 1990. Texas did not adopt the ABA's Ethics 2000 revisions; its rules have been amended only piecemeal since, including the comprehensive 2021 revisions adopted by Texas Supreme Court order. 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 bank charge a customer for its in-house lawyer's preparation of the customer's loan documents?

A: The Committee concluded that if the customer is charged a fee specifically for the lawyer's preparation of the customer's documents, that is a fee for legal services, and the bank's retaining it violates Rule 5.04(a).

Q: Does it matter that the in-house lawyer gives the applicant no legal advice?

A: The Committee concluded it does not. The loan application is the applicant's, so preparing the applicant's documents is a legal service for the applicant when the applicant is specifically billed for it, even without separate advice.

Q: How could the bank structure a fee without violating the rule?

A: Per the opinion, the bank may charge a blanket document-processing fee that includes the costs of lawyer and nonlawyer personnel, copying, delivery, and similar items, or earn ordinary loan fees and interest, so long as there is no separately identified fee for the lawyer's preparation of the documents.

Background and rules framework

The opinion interprets Texas Disciplinary Rule 5.04(a) (professional independence of a lawyer; ABA Model Rule 5.4(a)), which provides that, with exceptions not relevant here, a lawyer or law firm shall not share or promise to share legal fees with a nonlawyer. The Committee quoted Comment 1 to Rule 5.04, which explains that the limitation exists to prevent lay solicitation of clients for lawyers and to avoid encouraging or assisting nonlawyers in the practice of law.

Citations and references

Rules of Professional Conduct:

• MR 5.4(a) (sharing legal fees with a nonlawyer)
• Texas Disciplinary Rule 5.04(a) and Comment 1

Other opinions cited:

• Tex. Ethics Op. 417 (Texas Bar Journal, June 1984): under the predecessor DR 3-102(A), a lawyer could not participate in an arrangement where a collection agency retained fees paid for the lawyer's services

See also

• TX Ethics Op. 493: Forming an LLP With Nonlawyer Professionals
• TX Ethics Op. 498: A Salaried Lawyer at a Nonlawyer-Owned Corporation
• TX Ethics Op. 503: Sharing Court-Awarded Fees With a Nonprofit Referrer

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-490/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_490.pdf

Original opinion text

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

QUESTION PRESENTED

October 1993
[PEC No. 91-12]
Do the Texas Disciplinary Rules of Professional Conduct permit an arrangement under which a bank charges a fee to loan applicants for the preparation of mortgage loan documents by an in-house lawyer who is paid a salary by the bank but does not receive any part of the fees paid by loan applicants?

STATEMENT OF FACTS

A bank that has recently opened a mortgage department has been preparing loan documents to meet Federal National Mortgage Association ("FNMA") guidelines and has then had the loan documents approved by outside counsel. The bank now proposes to have its in-house attorney, who is a member of the State Bar of Texas and who is paid a salary by the bank, prepare the loan application documents. The attorney would not seek to advise the loan applicant concerning the loan transaction; the attorney's sole obligation would be to prepare the loan documents in a form that would be acceptable to the bank, the FNMA and any subsequent purchasers of mortgages in the secondary market. The bank proposes to charge a fee for the in-house lawyer's preparation of documents.

DISCUSSION

It is entirely appropriate for a lawyer who is a member of the State Bar of Texas to work as a full-time employee of a corporation, to render legal services to that corporation, and to assist in providing services to customers that are not specifically legal services. However, the Texas Disciplinary Rules of Professional Conduct do not permit a corporation that employs a lawyer to charge for the lawyer's services a fee that is retained in whole or in part by the corporation. Such an arrangement would be a violation of Rule 5.04(a) [FN1], which provides that, with exceptions not here relevant, "A lawyer or law firm shall not share or promise to share legal fees with a non-lawyer. . . ." Comment 1 to this Rule explains that "The provisions of Rule 5.04(a) express traditional limitations on sharing legal fees with nonlawyers. The principal reasons for these limitations are to prevent solicitation by lay persons of clients for lawyers and to avoid encouraging or assisting nonlawyers in the practice of law."

In this case, the loan application is an application of the loan applicant and not of the bank. Hence, even though the bank's lawyer does not provide legal advice to a loan applicant, the preparation of the loan document by the lawyer is itself a legal service for the applicant if the applicant is specifically billed for the service. [FN2] Accordingly, if the loan applicant pays a fee to the bank specifically for the lawyer's preparation of loan documents, this fee is a fee for legal services. It is contrary to Rule 5.04(a) for the lawyer to provide the service and allow the bank to retain some or all (in this case all) of the fee. A similar conclusion was reached in Texas Professional Ethics Committee Opinion No. 417 (Texas Bar Journal, June 1984). That opinion held that, under Disciplinary Rule 3-102(A) of the Texas Code of Professional Responsibility as in effect prior to 1990 (which is similar to the current Rule 5.04(a)), a lawyer could not participate in an arrangement where a collection agency retained fees paid by a creditor to the collection agency for the lawyer's services.

It should be noted that this conclusion would not apply if the bank did not charge a fee specifically for the lawyer's preparation of loan documents. A bank's receipt of fees and interest income relating to mortgage loan applications on which an in-house lawyer has worked does not involve the lawyer's sharing legal fees with the bank. As a result there would not be a violation of Rule 5.04(a) if the bank charged a blanket fee for document processing that included the costs of lawyer and non-lawyer personnel involved in the preparation of documents, copying charges, delivery services, etc.

A lawyer who is a salaried employee of a bank may not under the Texas Disciplinary Rules of Professional Conduct participate in the preparation of loan application documents for bank customers if the bank charges the customers a specific fee for the lawyer's services with respect to the loan application documents. However, it is permissible for lawyer employees of a bank to assist in the preparation of loan application documents for bank customers so long as there is no specifically identified fee charged to the loan applicants for the lawyer's preparation of the documents.

FN1 All references to Rules are to the Texas Disciplinary Rules of Professional Conduct.

FN2 It should be noted that, although a lawyer's preparation of application documents for a person generally constitutes the practice of law, in many cases corporate personnel, whether or not lawyers, may assist a person in filling in forms related to the corporation's business without causing the corporation to be itself engaged in the practice of law.

CONCLUSION

A lawyer who is a salaried employee of a bank may not under the Texas Disciplinary Rules of Professional Conduct participate in the preparation of loan application documents for bank customers if the bank charges the customers a specific fee for the lawyer's services with respect to the loan application documents. However, it is permissible for lawyer employees of a bank to assist in the preparation of loan application documents for bank customers so long as there is no specifically identified fee charged to the loan applicants for the lawyer's preparation of the documents.

Tex. Comm. On Professional Ethics, Op. 490 (1993)