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                                             90 N.J.L.J. 297
                                            May 11, 1967


Appointed by the New Jersey Supreme Court


Mortgagee's Attorney Closing Fees

     Question: Is it proper for an attorney to represent a lending institution in closing a mortgage loan where a reasonable attorney's fee (approximately $275) for title search and examination, preparation of papers, and attendance at closing is to be paid by the mortgagor-purchaser to the attorney, by agreement between the attorney, the lending institution, and the mortgagor, with no portion of the attorney's fee to be retained by the lending institution, but a reasonable fee (approximately $100) to be paid
by the attorney to a title company for the search and preparation of the title binder?
    The attorney states that the mortgagor will have full access to his best opinion as to the estimated costs of the legal fees and other closing costs, if any, that the mortgagor will be advised further that his interests would best be protected by his retention of independent counsel and his right to an owner's title policy, and that the mortgagor is required to sign a letter on the day of settlement setting forth the following points:
    1.    That the attorney has advised the mortgagor that he represents the lending institution;
    2.    That the attorney has given no opinion, and made no representation with respect to title to the premises involved;

    3.    That the attorney is about to obtain mortgagee title insurance which affords no protection to the mortgagor;
    4.    That the attorney has offered to obtain an owner's policy but unless the mortgagor orders an owner's policy, the attorney is directed not to obtain such a policy;
    5.    That the mortgagor acknowledges he has been notified prior to closing or knew and understood prior to closing that the mortgagor's interest might be better protected by the engagement of independent counsel.
    There appears to be nothing improper with the basic facts set forth in the question and in the manner of representing the lending institution. The fact that banks have for many years required borrowers to pay for the costs of settlement, including a reasonable attorney's fee to the bank's attorney, is well recognized. See N.J. Advisory Committee on Professional Ethics, Opinion 27, 87 N.J.L.J. 97 (1964).
    However, the attorney should, upon receipt of notification from the lending institution of the mortgage application, immediately notify the borrower in writing, in clear language, that he represents the lending institution only, that his charges will be $175 for attorney's fees and $100 for procuring a mortgagee's title policy; that the attorney will procure an owner's policy (at additional cost to the borrower) if requested, but not otherwise, and that his interests would better be protected if he engaged an attorney of his own choice.

    In N.J. Advisory Committee on Professional Ethics, Opinion 7, 86 N.J.L.J. 405 (1963), we indicated it was the duty of the attorney for the lending institution to advise the purchaser well in advance of settlement to engage independent counsel.
    Most purchasers do not understand that the attorney for the lender does not represent the borrower. It is true that the interests of the mortgagee and of the purchaser are as to title, in most cases, the same. But any notification which is not clear and unequivocal and given well in advance of settlement is not in accordance with the ethical standards set forth In re Kamp, 40 N.J. 588 (1963). See also this Committee's Opinion 51, 87 N.J.L.J. 705 (1964).

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