Can a lawyer who owns a substantial interest in a title insurance company certify title to that company in a real estate deal and take compensation from it?

Plain-English summary

In CPR 17 (1974), the bar had noted G.S. 58-135.1, effective July 1, 1974, which prohibits lawyers and others performing services in a real estate settlement or sale from receiving any kickback, rebate, commission, or other payment in connection with the issuance of title insurance for property in that settlement, and had withdrawn a 1964 opinion (Ethics Opinion 459) that permitted such payments with disclosure. CPR 17 noted that whether a lawyer who certifies title to a title insurer in which he owns stock is "solely" a shareholder, and thus within the statute's stock-ownership exception, was a question of law on which no opinion was expressed. The Attorney General later opined that, because the statute is criminal and strictly construed, a person whose only involvement is owning stock in a title agency or insurer cannot be found guilty. This opinion took up the separate ethical question.

The opinion concluded that many non-criminal practices are unethical. It is unethical for a lawyer who owns a substantial interest, directly or indirectly (such as through family members or business or professional associates), in a title insurance company, agency, or agent, and who acts as lawyer in a real estate settlement or sale insured by that company, agency, or agent, to receive any commission, fee, salary, dividend, or other compensation or benefit from it, whether or not the fact is disclosed to the client for whom the lawyer performed the services.

Currency note

This opinion was issued in 1977 under North Carolina's former Code of Professional Responsibility (the DR/EC framework), before the State Bar replaced the Code with the Rules of Professional Conduct (adopted 1985) and before the 2003 revisions to those Rules. The personal-interest and business-transaction principles it applied correspond to today's Model Rules 1.7 and 1.8. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer certify title to a title insurer he has a financial stake in?

A: Not for compensation. The opinion concluded it is unethical for a lawyer with a substantial interest in a title insurer to certify title to it in a deal it insures and receive any compensation or benefit from it.

Q: Does disclosing the financial interest to the client make it acceptable?

A: No. The opinion concluded the practice is unethical whether or not the interest is disclosed to the client.

Q: Does the indirect nature of the interest matter?

A: No. The opinion concluded the rule reaches interests held directly or indirectly, such as through family members or business or professional associates.

Background and rules framework

The opinion addressed the ethical question separate from the criminal statute (G.S. 58-135.1) the Attorney General had construed, applying the former Code's personal-interest and self-dealing principles (corresponding to today's Model Rules 1.7 and 1.8). The analysis turned on the lawyer's financial stake in the insurer he certifies title to, which makes the compensation improper regardless of disclosure.

Citations and references

Rules of Professional Conduct:

• North Carolina Code of Professional Responsibility (personal-interest conflicts; self-dealing)
• MR 1.7 (conflicts of interest); MR 1.8 (business transactions and interests adverse to a client)

Statutes:

• G.S. 58-135.1 (prohibiting kickbacks in connection with title insurance, as discussed in the opinion)

Other opinions cited:

• North Carolina CPR 17; Ethics Opinion 459 (withdrawn)

See also

• NC Ethics Op. RPC 40: lender closing-document liability
• NC Ethics Op. RPC 24: buying client property at an execution sale

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/cpr-101/

Original opinion text

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

Inquiry:

By CPR 17, issued in July, 1974, we called attention to G.S. 58-135.1 which became effective July 1, 1974, prohibiting lawyers and others performing services incident to or a part of any real estate settlement or sale to receive directly or indirectly any kickback, rebate, commission or other payment in connection with the issuance of title insurance for any real property which is a part of such settlement or sale, and we withdrew Ethics Opinion 459 issued in 1964 which permitted such practice if full disclosure was made.

We called attention to subsection (c) of GS 58-135.1 providing in part:

"No persons or entity shall in violation of this section solely by reason of ownership of stock in a bona fide title insurance company, agency or agent." (Emphasis supplied)

In CPR 17, we stated:

"Whether a lawyer who certifies title to a title insurance company or agency in which he owns stock is 'solely' a shareholder and, therefore, protected by the quoted portion of subsection (c) is a question of law upon which no opinion is expressed."

Thereafter, on September 27, 1974, Attorney General Carson rendered an opinion pointing out that GS 58135.1 is a criminal statute and must be strictly construed and concluding, "that if the only thing someone who is involved in the real estate transaction described in the statute has done is to own stock in a title agency or insurance company, that person cannot be found guilty of violating the statute."

While an opinion of the Attorney General of the State of North Carolina is entitled to respect, it should be remembered that he was dealing with the interpretation of a criminal statute. It did not purport to deal with the ethical question. We now deal with the ethical question. We now deal with the question of whether it is ethical for a lawyer performing services in a real estate settlement or sale to certify title to a title insurance company, agency, or agent in which the lawyer has a financial interest.

Opinion:

Many practices which are not criminal are unethical. It is unethical for a lawyer who owns a substantial interest, directly or indirectly as through family members or business or professional associates, in a title insurance company, agency, or agent, and who acts as lawyer in a real estate settlement or sale insured by such title insurance company or through such agency or agent, to receive any commission, fee, salary, dividend, or other compensation or benefit from such title insurance company, agency or agent, whether or not such fact is disclosed to the client for whom he performed said services.