Can a lender's lawyer take a fee the borrower is required to pay, even though the borrower never hired that lawyer?

Plain-English summary

A building and loan that advertised loans required a borrower to pay a fee to an attorney the borrower had not employed and did not know, before he could get a loan. The committee was asked whether the attorney representing the building and loan was thereby using it to solicit business, or accepting business through an intermediary in violation of Canon 35. It answered that he was not.

Applying Canons 35 and 47, the committee reasoned that the attorney represented the building and loan association, which (as it had held in the companion Opinion E-21, citing Kentucky State Bar Ass'n v. First Federal Savings and Loan Ass'n) has the right to choose its own attorney. Because the attorney was employed by the association to perform a specific legal service, he violated neither Canon 35 nor Canon 47; the legal fee was paid by the association for the legal services rendered. Whether the association then collected that fee from the borrower (as is usually done) or absorbed it (as is sometimes done) was up to the association and did not involve the attorney.

The committee added that the lender was within its legal right to require a title report and opinion on marketability, and also a credit report, appraisal, survey, and other requirements to satisfy itself as to its security, citing KRS 289.501, and that all such charges may be passed on to the borrower as part of the cost of the loan. The borrower could not dictate the loan terms and could go elsewhere if dissatisfied. Because the attorney was representing the association and rendering it a legal service, he was not soliciting business through intermediaries in violation of Canon 35.

Currency note

This opinion was issued in 1965 under the former Canons of Professional Ethics (in effect in Kentucky from 1946 to 1971) and predates both the 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments and later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific point mentioned here.

Common questions

Q: Can the lender's lawyer be paid a fee that the borrower is required to pay?

A: Under this opinion, yes. The committee held the fee is paid by the association for the lawyer's legal services, and whether the association passes that cost to the borrower does not involve the lawyer.

Q: Is the lawyer soliciting business through an intermediary?

A: No. Because the attorney was employed by the association to perform a specific legal service, the committee found no violation of Canon 35 or Canon 47.

Q: Can the lender pass these charges to the borrower?

A: Yes. The committee said the lender may require a title report, credit report, appraisal, survey, and other items (citing KRS 289.501), and may pass all such charges to the borrower as a cost of the loan.

Background and rules framework

The opinion applied Canons 35 and 47 of the former Canons of Professional Ethics, which addressed a lawyer's relationship to lay intermediaries and the rendering of legal services, and referenced KRS 289.501 on a lender's loan requirements. The modern analogs are Model Rule 5.4 (professional independence, including a third party paying the lawyer's fee) and Model Rule 7.2 (rules on a lawyer obtaining business), with Kentucky's counterparts at SCR 3.130(5.4) and SCR 3.130(7.2).

Citations and references

Rules of Professional Conduct:

• Canons 35, 47 (intermediaries and the rendering of legal services); modern analogs Model Rules 5.4 and 7.2

Statutes:

• KRS 289.501 (a lender's authority to impose loan requirements)

Cases:

• Kentucky State Bar Ass'n v. First Federal Savings and Loan Ass'n, 342 S.W.2d 397 (Ky.), a lender may select its own title attorney

See also

• KBA Ethics Op. E-21: Lender's Choice of Title Lawyer
• KBA Ethics Op. E-23: Whom the Title Lawyer Represents
• KBA Ethics Op. E-24: Title Insurer's Lawyer Examining Title
• KBA Ethics Op. E-39: Paying a Lender for Closing Help

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-022.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-22
Issued: January 1965

Question:

May an attorney represent a building and loan association where the
association requires an applicant for a real estate loan to pay an attorney’s
fee to an attorney he has not employed and does not know?

Answer:

Yes.

References:

Canon 35, 47; KRS 289.501
OPINION

A building and loan advertises and solicits those in need of money to purchase real
estate. When an application is made for a loan the borrower is required to pay an attorney
fee to an attorney that he has not employed, and does not know, before he can secure a
loan.

1. Is the attorney who represents a building and loan under this state of fact using
   the building and loan to solicit business or is the attorney accepting business through an
   intermediary and thereby violating Canon 35?
   This question also involves Sections 35 and 47 of the Canons of Professional
   Ethics. Again it should be noted that the attorney is representing the building and loan
   association. As stated above in response to Question I the association has the right to
   choose its own attorney. See Kentucky State Bar Assn v. First Federal Savings and Loan
   Assn, 342 S.W.2d 397.
   As the attorney is employed by the association to perform a specific legal service he
   is not violating either Canon 35 or 47. The payment of the legal fee is made by the
   association for the legal services rendered. Whether the association collects this fee from
   the borrower, as is usually done, or absorbs this cost itself as is sometimes done, is up to the
   association and does not involve the attorney. This is a part of the loan costs which the
   borrower is required to pay if he desires to make a loan. The lender is within its legal right
   to require not only a title report and opinion on the marketability of the property, but may
   also require a credit report, appraisal, survey, and any other requirement to satisfy itself as
   to the security it is asked to accept for the loan. See KRS 289.501. All of these charges may
   be passed on to the borrower as part of his cost of securing the loan. The borrower in this

position cannot dictate to the lender the terms of the loan; if not satisfied he may go
elsewhere to obtain a loan.
Since the attorney is representing the association and rendering a legal service to it,
he is not in our opinion soliciting business through intermediaries in violation of Canon 35.

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the
Kentucky Bar Association under the provisions of Kentucky Supreme Court Rule 3.530
(or its predecessor rule). The Rule provides that formal opinions are advisory only.