Link to original WordPerfect Document
106 N.J.L.J. 485
December 11, 1980
ADVISORY COMMITTEE ON PROFESSIONAL ETHICS
Appointed by the New Jersey Supreme Court
OPINION 463
Conflict of Interest
Referral Fee From
Soliciting Mortgage Broker
The inquirer has been solicited by a corporate mortgage broker
to participate in its program of approved attorneys. The mortgage
broker solicitation states in part
there are ample mortgage funds for both FHA/VA and
F&MA Conventional financing. We could be a valuable
source for both you and your clients. A fine working
relationship can be established between your office and
our company, as has been accomplished with other
attorneys.
We have a closing package which includes important
instructions. In consideration for handling our closings
as an approved attorney of our company, we will pay you
a review fee equal to $200 for each loan closed by you
where you are the designated closing attorney.
The inquirer advises that "The approved attorney is expected to
prepare a loan application for the mortgage service company to
approve and process Document preparation is the responsibility of
the mortgage service company. The attorney is required to review
the mortgage papers for correctness and legality and close the loan
at title closing." He inquires:
1. Whether there is a conflict of interest
(real or potential) in representing the buyer
and mortgage service company and receiving the
$200 review fee in addition to a separate fee
from the buyer; and
2. Can the situation be properly resolved by full
disclosure to the buyer client of all facts
relevant to the proposed transaction and
securing the client's written consent to same?
The inquiries here presented appear initially to parallel the
one we answered in Opinion 416, 103 N.J.L.J. 109 (1979), where we
advised that DR 5-107(A)(2) was applicable, and concluded that it
would be improper for an attorney to represent any party (buyer,
seller, mortgagee) in a transaction where the attorney originated
a referral to a realtor. The situation here presented differs from
that which prevails where an attorney is called upon to represent
both buyer and lender after an agreement of sale has been executed
and a mortgage commitment has been issued. We have here an
arrangement whereby the attorney would be directing his clients to
a particular mortgage broker on the basis of receiving a $200
commission for each loan application accepted and settled. This is
a type of commercial exploitation or control by lay persons of the
professional services of an attorney which our Supreme Court has
found to be objectionable. See In Re Kamp 40 N.J. 588 (1963), at
page 598. When an attorney undertakes the representation of a
purchaser of real estate and the financing of the transaction, he
has the obligation to negotiate the terms which are best suited to
the needs and repayment ability of his client. The volatility of
present day money markets, the shifting interest rates and the
types of mortgage financing available viz: conventional long-term
fixed rate mortgage, variable rate mortgage, renegotiable rate
mortgage, balloon type mortgage) only serve to point up the
intricacies of modern mortgage financing from the standpoint of the
welfare of the client. On the facts presented, the areas of
potential conflict of interest between attorney and client are too
numerous to specify.
We are mindful of our Supreme Court's Opinion in In Re Dolan
76 N.J. 1 (1978), where at page 9 the Court said "The sense of our
rules is that an attorney owes complete and undivided loyalty to
the client who has retained him. The attorney should be able to
advise the client in such a way as to protect the client's
interests, utilizing his professional training, ability and
judgment to the utmost. Consequently, if any conflicting interest
could arise which would stand in the way of that kind of unstinting
zeal, then the client must be so informed and the attorney may
continue his limited representation only with the client's informed
consent."
In view of the commercial exploitation aspects of the
inquiries here considered, and in line with our conclusion in
Opinion 416, supra, we conclude that it would be improper for an
attorney to represent a buyer mortgagor in a transaction where the
attorney originated the mortgage financing with a mortgage broker
on a referral fee basis. We further hold that the conflict of
interest here presented is so contrary to the nature of the
lawyer-client relationship that it cannot be cured by the consent
of the client.
* * *
This archive is a service of
Rutgers University School of Law - Camden