Link to original WordPerfect Document

                                        121 N.J.L.J. 1010
                                        May 19, 1988


Appointed by the New Jersey Supreme Court


Conflict of Interest: Relationships
Between Attorneys and Title Insurance Agencies

    Two separate inquiries made by separate attorneys have been submitted to this Committee for an advisory opinion. These inquiries involve substantially similar questions arising out of the relationship of attorneys either acting as agents for companies issuing policies of title insurance in the State of New Jersey or having a financial interest in a title company with whom they cause policies of title insurance to be issued in behalf of their personal clients.
    In the first inquiry, the inquirer states the facts to be as follows:
    Two law firms, consisting of three and four principals, respectively, are contemplating purchasing stock interests in a local title abstract company, which is an agent for a nationally known underwriter. The stock interests will be held by the principals, individually, while no one person or firm (if the stock interests of the respective principals are aggregated) will hold a majority interest, the individual attorneys collectively will hold a majority interest. The abstract company's offices are independently staffed and independently operated. The individual principals will be entitled to dividends as any other shareholders.

The inquirer further states that:

    The two law firms contemplate utilizing the local title abstract company for the benefit of real estate purchaser clients (and those purchasers' mortgage lenders) in the same manner as would other attorneys who have no stock interest, after full disclosure to their clients.

and that:

    In addition, the law firms both serve as counsel to a real estate developer of residential condominium units and represent the developer in connection with the sale of those units. It is contemplated that a specimen title policy to be issued by the local company (as agent for the national underwriter) will be attached to the public offering statement for the condominium and the agency will attempt to solicit orders. The attorneys for the buyers of the units will be free to use any title company they choose, although it is contemplated the agent would receive a high percentage of the business for this condominium. The developer will consent to this arrangement after full disclosure.

it also appears that "one of the law firms may serve as legal counsel to the local agency and receive a retainer or other fees for legal services rendered."
    The inquirer seeks an advisory opinion on the following issues:
        1.    Can the law firms utilize the agency for the bene fit of their respective real estate purchaser clients after full disclosure?

        2.    Can the law firms represent the seller of the con dominium units in the development referred to above if the attorneys are shareholders of the local title abstract company which may issue title policies for the benefit of the purchasers of those units? If so, is disclosure required?

        3.    Can one of the law firms serve as counsel to the local title abstract company?

        4.    Would any of the above opinions be different, if instead of buying interests in an existing title abstract company, the attorneys set up a new company?

It is our considered opinion that the first three questions clearly fall within the parameters of Opinion 513, 111 N.J.L.J. 392 (1983), as well as Opinion 495, 109 N.J.L.J. 329 (1982), where we identified the sources of conflict:
    [R]eliance by purchasers of real estate of good 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.
    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.

    As to the fourth issue, namely: "Would any of the above opinions be different, if instead of buying interests in an existing title abstract company, the attorneys set up a new company?" the answer is also in the negative. We perceive no reason for changing our opinion simply because the abstract company in question is newly formed rather than by separate purchase of stock interests in the existing local title abstract company.
    The second inquirer apparently is acting as a "title insurance agent" for a title insurance company. There is no specific inquiry set forth by the inquirer, but rather, the inquiry is couched in the presentation of factual argument. If we understand the inquiry correctly, the real question is whether the attorney may act as a title insurance agent with reference to policies of title insurance to be issued by that insurance company based upon the agent's abstract for and in behalf of his personal clients. It is our understanding that the attorney does not have a beneficial interest in the title company, nor does he have a minority stock interest, but is the agent for the title company in an individual proprietary capacity, apparently doing and performing the abstract work.
    Again, it is our considered opinion that our Opinions 495, supra, and 513, supra, as well as the other citations referred to in said Opinions, fully and adequately answer this inquiry. The guidelines are clear, and the facts and conduct of the attorney will determine whether his activity will constitute a conflict of interest, which can be cured by a full disclosure.

* * *

This archive is a service of Rutgers University School of Law - Camden