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                                        109 N.J.L.J. 329
                                        April 22, 1982


Appointed by the New Jersey Supreme Court


Conflict of Interest
Attorney Stockholder of Title Insurance
Agency Representing Purchaser and Lender

    An opinion is requested concerning the following queries:

    1.    Is there a conflict of interest (real or potential) when an attorney represents the purchaser of real estate (and that purchaser's mortgage lender) and the title insurance is obtained through a title insurance company agency in which that attorney owns a beneficial interest?

    2.    Can the situation be properly resolved by full disclosure to the purchaser client (and lender) of all foreseeable potential conflicts between the buyer's or lender's interests and those of the title insurance company?See footnote 1 1

    The hypothetical situation under review involves a situation where an attorney representing purchasers of real estate also represents the interests of the mortgagee-lender in preparation of documents, securing a first lien, remitting escrows, etc. The issues posited arise where that attorney holds a beneficial interest in a title insurance company agency and proposes to submit title insurance binders issued by his agencies, and countersigned by him, for his client purchasers and lenders.
    While noting that practices differ in various parts of the State, and even from county to county, notice may also be taken that reliance by purchasers of real estate of good and marketable title has shifted from lawyers who examined and certified title to title insurance companies. The lawyer now plays the role of reviewing the commitment binder and obtaining or negotiating the removal of exceptions. Thus the title insurance company seeks to limit its liability while counsel for the purchaser and lender has a duty to try to expand the liability of the title company. The title insurance company agent acts as an agent for the company and binds it. If he is also an attorney representing the purchaser and lender in the transaction, he also acts for them. In all instances, he owes a duty of fidelity to each interest.
    The brief submitted by inquirers pursuant to the command of R. 1:19-3 urges the relevancy here of DR 5-107 (a)(2), DR 5-105, and DR 5-101. DR 5-105 mandates that a lawyer shall decline employment if his independent professional judgment would be impaired for any reason (Sec. A) or if that judgment would be affected adversely by representation of another client (Sec. B). DR 5-101 (a) prohibits the acceptance of employment if his professional judgment may be affected by his own financial or business interests. DR 5-107 (a)(2) provides that a lawyer may not accept from someone other than his client anything of value related to representation of his client.
    The recitation of those Disciplinary Rules appears clearly to provide an answer to the first inquiry. In the case of In re Kamp, 40 N.J. 588, 597 (1963), Justice Proctor said that the practice of

law cannot be placed in a commercial atmosphere, for it is foreign to the principle that the practice of law is a profession and not a business. He went on to say, "(F)ailure to give adequate representation is an inherent danger in representing conflicting interest. Consequently, there need not be an actual conflict to bring the aforementioned rules into focus. They become critical when an attorney's judgment is likely to be adversely affected and where an "appearance of impropriety" may exist. In re Lanza, 65 N.J. 347, 354 (concurring opinion); In re Kamp, supra, at 595. It is therefore the opinion of the Committee that there is a conflict of interest presented under the circumstances set forth by inquirers. The second question poses a thornier problem. Is there a potential conflict or a real conflict? Put another way, is the conflict presented so contrary to the nature of the lawyer-client relationship that it cannot be cured by the consent of the client? See Opinion 463, 106 N.J.L.J. 485 (1980).See footnote 2 2
    In Opinion 463, this Committee held that it would be improper for an attorney to represent a buyer mortgagor where the attorney originated the mortgage financing with a mortgage broker on a referral fee basis because the commercial exploitation aspects of the transaction were such that the conflict could not be cured by consent of the client. See, also, Opinion 416, 103 N.J.L.J. 109 (1979) (Improper to represent any party in a transaction where the attorney originated the referral to the realtor.)See footnote 3 3
    Instructive here is the enunciation by our Supreme Court:
        If an attorney wishes to be a businessman as well as perform the precise functions of a lawyer, he must act in the transactions with the high standards of his profession and not with an 'arm's length' and lapsable attitude.

        The fiduciary obligation of a lawyer applies to persons who, although not strictly clients, he has or should have reason to believe rely on him... In re Genser, 15 N.J. 600, 606 (1954)

    Keeping in mind the strictures set forth above, we address the issue presented. It may be urged, not without some persuasiveness, that in truth what is being sought is a common goal, i.e., all the parties to the transaction desire a good, marketable title. That obviously is true, but that surface argument is too simplistic. Guidance may, we think, be obtained by reference to Opinion 243, 95 N.J.L.J. 1145 (1972). The Committee there considered two separate factual situations: (1) whether representation of a mortgagor and mortgagee is permitted in the absence of actual conflict by making full disclosure; and (2) whether the representation of a vendor and vendee in the same transaction is interdicted absolutely.
    The Committee held that the proctocolitis including the cost to the borrower and the fact that both had identical interests with regard to title, militated in favor of permitting the practice of dual representation, but "approached with great caution." To the contrary, it was held that:
    ...(T)he representation of a buyer and a seller in connection with the preparation and execution of a contract of sale of real property is so fraught with obvious situations where a conflict may arise that one attorney shall not undertake to represent both parties in such a situation.

    In the case presented here, each title binder which contains standard exceptions and specifically related exceptions presents an absolute conflict requiring independent evaluation in every case and, conceivably, hard negotiation on the one hand, as set forth at the outset, to expand liability and, on the other, to limit or restrict liability. The situation presented is basically contrary to the professional standards required and inherently creative of an appearance of impropriety such that it cannot be permitted even if disclosure is made to all parties.See footnote 4 4

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Footnote: 1 1
Inquirers certify that the inquiry involves others and that no matters in their office presently involve the circumstances involved herein.

Footnote: 2 2
Each of the Disciplinary Rules considered herein contains a provision which appears to cure a conflict, except where the public interest is involved, by the attorney's making full disclosure and receiving consent of the client or clients. However, it is clear that certain relationships create conflicts which may not be cured by disclosure and consent.

Footnote: 3 3
There is no indication here that any remuneration is received by the attorney title company agent and it is assumed that none is received other than profit or dividends.

Footnote: 4 4
The facts set out by inquirer do not spell out the extent of the interest of the attorney title company agent. It is assumed in this opinion that the company is not a public company and that the attorney has a significant beneficial interest.

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