Charging Fees to Separately Represented Party in Residential Real Estate Closing
Adopted: January 21, 2022
Opinion rules that a closing lawyer representing the buyer in a residential real estate transaction may not charge a fee for services performed that primarily benefit the buyer to a separately represented seller unless the seller consents to the fee and the lawyer complies with Rules 1.5(a) and 1.8(f). The opinion also allows a closing lawyer to charge a seller for services performed that primarily benefit the seller if seller is notified in advance of the charge and has a reasonable opportunity to object to the charge.
Buyer retained Lawyer A to represent Buyer in a residential real estate transaction. Seller declined to retain Lawyer A and instead retained separate counsel for the transaction, Lawyer B. Leading up to the closing, rather than using her standard documents for the transaction, Lawyer A received documents prepared by Lawyer B to be used at closing, which differed substantially from the documents Lawyer A planned to use at closing. As a result, Lawyer A was required to review Lawyer B’s work and make changes to the proposed documents for the benefit of her client, Buyer. At closing, Lawyer A charged a $100 fee to Seller for the work Lawyer A completed in reviewing and responding to Lawyer B’s proposed documents. Lawyer B and Seller objected to the fee charged by Lawyer A to Seller.
Inquiry #1:
May Lawyer A charge a fee to Seller for the work completed in reviewing and responding to Lawyer B’s proposed documents?
Opinion #1:
No, unless a) Seller agrees to pay the fee, b) Buyer consents to Seller’s payment of Lawyer A’s fee, and c) the fee charged is not illegal or clearly excessive.
Rule 1.8(f) prohibits a lawyer from receiving compensation for representing a client from a person other than the client unless these three requirements are met: “(1) the client gives informed consent; (2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and (3) information relating to the representation of a client is protected as required by Rule 1.6.” Additionally, Rule 1.5(a) states that “[a] lawyer shall not make an agreement for, charge, or collect an illegal or clearly excessive fee[.]”
Lawyer A has been retained by Buyer to represent Buyer (and presumably Buyer’s lender, if applicable) in the acquisition of real property from Seller. Although representation of multiple parties to a real property transaction is possible without violating Rule 1.7’s prohibition on engaging in a concurrent conflict of interest during a representation (see, e.g., CPR 100, RPC 210, 2006 FEO 3, and 2013 FEO 4), Seller has elected to obtain separate counsel for the transaction. Accordingly, Lawyer A’s representation is limited to Buyer, and all work completed in the transaction by Lawyer A is for the benefit of her client, Buyer. Under these circumstances, the only way Lawyer A could collect a fee for the legal services provided to Buyer from anyone other than Buyer would be through compliance with Rule 1.8(f). Specifically, Lawyer A must a) obtain Buyer’s informed consent to Seller paying all or a portion of Lawyer A’s fee for completing her representation of Buyer in the transaction, b) ensure that Seller’s payment of Lawyer A’s fee does not interfere with lawyer’s independence of professional judgment or with the client-lawyer relationship; and c) ensure that all information deemed confidential pursuant to Rule 1.6 remains appropriately protected in accordance with that Rule. Furthermore, any fee collected by Lawyer A from Seller or a third party for the benefit of Buyer must not be illegal or excessive pursuant to Rule 1.5(a). See 2006 FEO 3 and 2013 FEO 4.
Of course, the scenario contemplated by Rule 1.8(f) whereby a third party (or opposing party) pays the lawyer for legal services provided to the lawyer’s client presumes the third/opposing party is offering or agrees to pay the lawyer’s fee. Nothing in the Rules of Professional Conduct permits or empowers a lawyer to charge a third or opposing party for legal services performed for the benefit of her client without that party’s consent. This is true even if the work completed by the lawyer for the benefit of her client also benefits the opposing or a third party. Under the present inquiry, should Seller refuse to pay Lawyer A’s proposed fee, Lawyer A may not unilaterally charge a fee to Seller without Seller’s consent. Whether statutory law, court order, or some other legal obligation between the parties (such as a purchase agreement) permits Lawyer A to charge a fee to Seller in this or a similar scenario is a legal question outside the purview of the Ethics Committee. See 2006 FEO 3 and 2013 FEO 4.
Inquiry #2:
May Lawyer A charge an additional fee to Buyer for the work completed in reviewing and responding to Lawyer B’s proposed documents?
Opinion #2:
Yes, provided the fee charged is not illegal or excessive. See Rule 1.5(a).
Inquiry #3:
During Lawyer A’s review of the property’s title, Lawyer A discovered that Seller acquired the property from an estate. Lawyer A’s initial review revealed that the estate from which Seller acquired the property went through a highly contested probate proceeding, with the estate’s real property (including the property involved in the present transaction) divided amongst the heirs. As a result, Lawyer A spent additional time reviewing that estate to ensure her client (Buyer) will obtain clean title to the property from Seller.
May Lawyer A charge a fee to Seller for the time spent reviewing the estate to ensure Seller’s title was clean for Buyer’s transaction?
Opinion #3:
No, unless a) Seller agrees to pay the fee, b) Buyer consents to Seller’s payment of Lawyer A’s fee, and c) the fee charged is not illegal or clearly excessive. In this scenario, Lawyer A is completing work for the benefit of her client, Buyer, to ensure Buyer’s goals for the representation are realized (namely, obtaining clean title to the property sought). Any additional work completed that warrants an additional charge by Lawyer A should be addressed with Lawyer A’s client for whom the work is completed. See Rule 1.8(f) and Opinion #1.
Inquiry #4:
When Seller originally acquired the subject property, Seller obtained a mortgage loan from a lender to fund his purchase of the property. As a result, Seller’s lender obtained a lien on the property to secure the loan to Seller. As part of closing, a portion of the proceeds from the sale of Seller’s property was paid to Seller’s lender in satisfaction of the mortgage loan Seller previously obtained to purchase the subject property. With Seller’s loan now satisfied, and to ensure Buyer obtains clean title from Seller, Lawyer A needs to file a cancellation of lien to remove the lien held by Seller’s lender.
May Lawyer A charge a fee to Seller for the work completed in cancelling Seller’s lender’s lien?
Opinion #4:
Yes, provided that a) Seller is provided advance notice of the fee to be charged and a reasonable opportunity to object, b) Seller does not object to the fee charged, c) Buyer consents to Seller’s payment of Lawyer A’s fee, and d) the fee charged is not illegal or clearly excessive. Although Buyer receives a benefit from Lawyer A’s work in cancelling Seller’s lien, (namely, obtaining clean title to the property sought), Lawyer A’s services primarily benefit Seller in that Lawyer A is relieving Seller of his statutory and/or contractual obligations to provide clean title to Buyer. As such, Lawyer A may charge Seller for services that fulfill Seller’s sole obligations, but Lawyer A must provide Seller with notice of the intended charge and an opportunity to object to the service and charge. If Seller does not object to the charge, Lawyer A may complete the work and charge Seller as proposed.
Notably, Lawyer A’s service and charge to Seller does not create an attorney-client relationship with Seller. Rather, Lawyer A continues to represent Buyer, and Lawyer B continues to represent Seller, but for purposes of efficiency the parties agree to Lawyer A completing the tasks required of Seller and Lawyer B.
Should Seller object to Lawyer A’s offer and proposed fee, Lawyer A may not charge Seller for work completed in ensuring clean title; instead, Lawyer A may only charge her client, Buyer, for additional work in completing the transaction so long as any such charge complies with Rule 1.5. While outside of the scope of the Rules of Professional Conduct, Lawyer A should review and rely upon, if necessary, any available legal remedies to ensure Seller complies with all applicable statutory and/or contractual obligations associated with the transaction, including providing clean title.
Inquiry #5:
May Lawyer A charge Seller for expenses incurred during the closing that are associated with Seller’s role in the transaction?
Opinion #5:
Yes, provided that a) Seller is provided advance notice of the charged expense and a reasonable opportunity to object, b) Seller does not object to the charged expense, and c) the charged expense is an accurate and documented expense incurred by Lawyer A in facilitating Seller’s role in the transaction. Such expenses include, but are not limited to, postage, copying expenses, overnight delivery charges, and/or wire transfer fees associated with carrying out the transaction.