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                                        106 N.J.L.J. 485
                                        December 11, 1980


Appointed by the New Jersey Supreme Court


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.
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