Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 2001-09
Topics: Referral Fees Paid to Lawyer by Service Provider.
Digest: Notwithstanding consent of a client, a lawyer may not accept a fee from a real estate broker and/or mortgage broker for referral of a client to a real estate broker or mortgage broker if the attorney represents the client, directly or indirectly, in connection with the subject transaction.
Code Provisions: DR 5 101(A),
EC 5-1
Facts Presented: Inquirer presents a letter from a real estate broker soliciting brokers and attorneys to send buyer and seller referrals and offers to pay a fee. The letter states that a subsidiary mortgage company can help in qualifying purchasers and the placement of mortgages and implies that fees shall be available for those referrals also.
Inquiry: May an attorney accept a fee from a real estate broker or mortgage broker for referring a client to the broker?
Determination:  
Analysis: The committee does not render opinions on questions of law and, thus, does not opine on whether the proposed arrangement violates any statute or regulation. If the proposed agreement violates any law (see, e.g., RESPA, 12 U.S.C.section 2601 et seq. [proscribing kickbacks and unearned fees for the referral of business incident to a real estate settlement service involving federally related mortgage loan]), it perforce would be unethical.

DR5-101 (A) requires that a lawyer obtain client consent to a conflict of interest when the lawyer has a financial interest in the representation. That rule provides:
Except with the consent of the client after full disclosure, a lawyer shall not accept employment if the exercise of professional judgment on behalf of the client will be or reasonably may be affected by the lawyers own financial, business, property, or personal interests.

As amended, DR 5-101 (A) provides that a lawyer may not accept a client's waiver of a conflict "unless a disinterested lawyer would believe that the representation of the client will not be adversely affected thereby," replacing the "obviousness" test previously in the Code, and requiring that any such consent be made after "full disclosure of the implications of the lawyer's interest." N.Y. State Bar Op.731 (7/27/00)

EC 5-1 The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of the client and free of compromising influences and loyalties. Neither the lawyer's personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute the lawyer's loyalty to the client.

The committee is mindful of N.Y. State Bar Op. 667(1994) opining that an attorney may accept a referral fee from a mortgage broker, provided that the client consents to the arrangement after full disclosure, all proceeds thereof are credited to the client if the client requests the attorney to do so, the aggregate attorney's fees are not excessive, and the attorney exercises independent judgment on behalf of the client.

However, in light of the amended DR 5-101 (A), it appears that meaningful consent is difficult to obtain where the attorney's financial benefit from the brokerage transaction is as significant or more so than the potential legal fee. This committee is of the opinion that A disinterested lawyer could not reasonably believe that the representation of the client would not be adversely affected by the attorney's participation in a brokerage fee, which is likely contingent upon the transaction closing.

The foregoing is not intended to preclude an attorney from accepting a legally permissible referral fee from a service provider if the attorney does not directly or indirectly represent the referred party in that transaction and the transaction is otherwise legal. Nor do we hold that a de minimus fee, such as that contemplated in Opinion 01-10 regarding a termite service where there is proper disclosure to the client, is prohibited.

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