A residential mortgage lender wants to pay me for closing and title work, but keep the 'document preparation' portion of the fee itself as extra compensation for documents it prepared. Is that fee-splitting arrangement proper?

Plain-English summary

A residential real estate lender asked the attorney to represent it in two possible arrangements for residential real estate transactions. In the first, the attorney would provide document preparation and closing services, paid as two amounts itemized to the borrower as "Document Preparation" and "Closing Services." In the second, the attorney would also provide title services, with the lender itemizing the charges as "Closing Fee" and "Title Insurance Fee," resulting in a higher total fee to the attorney, which he felt was fair compensation for the added work; however, the lender would keep an amount equal to the "Document Preparation" fee as additional compensation for documents it had prepared. The attorney asked whether these fee arrangements were proper, and whether he could avoid the problem by simply refusing the document preparation fee in all cases.

The panel quoted G.L. 1956 Section 19-10-9, requiring lending institutions that require a title search to first let the prospective mortgagor choose a qualified title attorney, and assumed, for purposes of its response, that the attorney had satisfied himself the provisions of that statute were met before representing the lender in either situation, noting that failure to do so would constitute participation in a statutory violation. The panel then quoted Rule 5.4(a), barring a lawyer or law firm from sharing legal fees with a nonlawyer, and G.L. 1956 Section 11-27-3, deeming any person or entity that receives a fee for an attorney's services to be practicing law unlawfully. The panel held that it is a violation of Rule 5.4 and Section 11-27-3 for the attorney to participate in the arrangements described: in the first scenario, the attorney is paid for the legal service of "document preparation"; if that is in fact a legal service, then in the second scenario paying that same fee to the lender instead of the attorney would violate Rule 5.4 and Section 11-27-3. If document preparation is not, in fact, a legal service, then in the first scenario the attorney would be charging a legal fee for a non-legal service, violating the general requirement under Rule 1.5 that a lawyer's fee be reasonable. The panel noted it has held in past opinions that a violation of a state statute also violates the prohibition against conduct prejudicial to the administration of justice under Rule 8.4, citing its own Digests of Opinions 88-21 and 88-32. Responding to the attorney's follow-up question, the panel held that since the document preparation fee would presumably continue to represent a fee for legal services, the same ethical problems and rule violations would arise if the attorney let the lender share the legal fees in both situations instead of just one; refusing the fee in all cases does not cure the problem because the lender's retention of it is the violation.

Currency note

This opinion was issued in May 1990, after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rules 5.4, 8.4, and 1.5 as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process, and the cited General Laws provisions may have been amended since 1990. Subsequent rule or statutory amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules and statutes before relying on any specific provision mentioned here.

Common questions

Q: Can a lender keep part of a real estate closing fee that's itemized separately as "document preparation"?

A: No, according to this opinion. The panel held it is a violation of Rule 5.4 and G.L. Section 11-27-3 for the attorney to participate in an arrangement where the lender keeps an amount equal to a document-preparation fee, if document preparation is in fact a legal service.

Q: If document preparation isn't really a "legal service," does that solve the problem?

A: Not fully. The panel held that if document preparation is not a legal service, then charging a legal fee for it in the scenario where the attorney is paid directly would violate the general requirement under Rule 1.5 that a lawyer's fee be reasonable.

Q: Can I avoid the ethics problem by simply declining the document-preparation fee myself in every transaction?

A: No. The panel held that since the fee would presumably still represent compensation for legal services, the same rule violations would arise if the attorney let the lender keep it in both scenarios instead of just one.

Background and rules framework

The opinion applies Rule 5.4(a) of the Rhode Island Rules of Professional Conduct, as adopted effective November 15, 1988, barring fee-sharing with a nonlawyer, Rule 1.5's reasonable-fee requirement, and Rule 8.4(d), together with G.L. 1956 Sections 19-10-9 and 11-27-3, to an inquiry about a residential mortgage lender's proposed fee-itemization arrangements with the attorney it retained for closings.

Citations and references

Rules of Professional Conduct:

• MR 5.4(a) (professional independence: fee-sharing with a nonlawyer)
• MR 8.4(d) (misconduct prejudicial to the administration of justice)
• MR 1.5 (fees)
• RI RPC 5.4(a), 8.4(d), 1.5, as adopted November 15, 1988

Statutes:

• R.I. G.L. 1956 Section 19-10-9 (1981 Reenactment), lending institutions' obligation to permit mortgagor choice of title attorney
• R.I. G.L. 1956 Section 11-27-3 (1981 Reenactment), receipt of attorney fees deemed unauthorized practice of law

Cases:

• None cited.

Other opinions cited:

• RI EAP Digests of Opinions 88-21 and 88-32, cited for the position that a violation of a state statute also violates Rule 8.4's prohibition on conduct prejudicial to the administration of justice.

See also

• ABA Formal Op. 464: Division of Legal Fees With Other Lawyers Who May Lawfully Share Fees With Nonlawyers

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2090-23.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

DIGEST OF ETHICS ADVISORY PANEL
OPINION 90-23, REQUEST #102
Issued May 31, 1990

An attorney seeks Panel advice as to the propriety of accepting certain payments for services which are calculated in the manner described.

The attorney advises the Panel that a residential real estate lender, ("Lender"), has asked him to represent it in connection with residential real estate transactions in two different situations. In the first circumstance the attorney would provide document preparation and closing services. In this case he would be paid two itemized amounts, disclosed to the borrower as: "Document Preparation" and "Closing Services."

In a second circumstance the attorney would provide document preparation, closing services and title services. In this case Lender proposed to disclose and itemize the charge for the attorney's services as "Closing Fee" and "Title Insurance Fee." In this second circumstance the total fee paid to the attorney would be higher than in the first circumstance. The attorney states that he feels the higher fee is acceptable in terms of compensating him proportionately for the amount of work done. The attorney adds, however, that Lender would keep an amount equal to the "Document Preparation" fee as additional compensation for documents it has prepared. The attorney asks whether these fee arrangements are proper.

General Laws 1956 Section 19-10-9 (1981 Reenactment) provides:

Lending institutions -- Title attorneys. -- Every bank, trust company, loan investment company, and credit union or any other lending institution which accepts an application for any residential mortgage loan or any commercial mortgage loan and which requires that a title attorney search the title of the subject real estate shall first permit the prospective mortgagor to select a qualified title attorney of his or her own choice to search the title of the subject real estate, provided the lending institution may require the prospective mortgagor to provide it with a title insurance policy in the amount of the mortgage.

In the event the prospective mortgagor does not select a qualified title attorney, then the prospective mortgagor shall sign a waiver permitting the lending institution to select its own attorney.

In responding to the attorney's questions the Panel assumes that before representing Lender in either of the situations described the attorney has satisfied himself that the provisions of Section 19-10-9 have been met. Failure to do so would constitute participation in the violation of a state statute.

Rule 5.4 titled "Professional Independence of a Lawyer," provides, in pertinent part:

(a) A lawyer or law firm shall not share legal fees with a nonlawyer.

General Laws 1956 Section 11-27-3 (1981 Reenactment) provides:

Receipt of fees as practice of law. -- Any person, partnership, corporation or association that receives any fee or any part of a fee for the services performed by an attorney at law shall be deemed to be practicing law contrary to the provisions of this chapter.

The Panel takes the position that it is a violation of Rule 5.4 and Section 11-27-3 for the attorney to participate in the scenarios described given the fee arrangements described. In the first scenario the attorney is paid for the legal service of "document preparation." If this is, in fact a legal service then the attorney is in violation of Rule 5.4 and Section 11-27-3 when, in the second scenario the fee for "document preparation" is paid to the lender instead of to the attorney. If the document preparation is not, in fact, a legal service in either scenario then in the first scenario the attorney would be charging legal fees for a non-legal service, in violation of the general requirement that a lawyer's fee be reasonable. (See Rule 1.5). In past opinions the Panel has noted that an attorney violation of a state statute also constitutes a violation of the prohibition against "conduct... prejudicial to the administration of justice." See Rule 8.4, DR 1-102(A)(5), Digests of opinions 88-21, 88-32.

The attorney asks whether the ethical problems arising from the arrangements described can be avoided if the attorney refuses the document preparation fee in all cases. Since the document preparation fee would presumably continue to represent a fee for legal services, the same ethical problems and rule violations would arise if the attorney allowed Lender to share the legal fees in both situations instead of just one.

Ethics Advisory Panel advice is protective in nature. There is no requirement that an attorney abide by a Panel opinion, but if he or she does, he or she is fully protected from any charge of impropriety.