EAO 21-01 says it’s ethical to pay $249 to be on lender’s closing attorney list

Standard

The first Ethics Advisory Opinion of the year is noteworthy for South Carolina real estate practitioners.

Here is a brief summary of the facts:  In a residential refinance, the lender’s loan estimate package provided the name of a specific South Carolina licensed attorney that the bank “identified” as one who could close the loan. The package expressly said the borrower could “shop for (the borrower’s) own providers” for legal and other services.

The borrower informed the bank that a different lawyer had been selected, but the bank’s second set of loan estimate documents again identified a different lawyer and again said the borrower could chose its own provider.

When the borrower asked why another lawyer’s name was identified, the bank responded that the borrower’s chosen lawyer could sign with a third-party company that the bank had contracted with to produce loan forms for an annual fee of $249 to be included on the list.

The borrower’s lawyer did not enroll in the program but did close the loan.

The question to the Ethics Advisory Committee was whether a lawyer may participate in a service provider network for an annual fee of $249 to be listed as an “identified” service provider without violating S.C. Rule of Professional Conduct 7.2(c)?

Rule 7.2 (c) generally provides that a lawyer shall not give anything of value to a person for recommending the lawyer’s services. One exception to the rule is that a lawyer may pay the reasonable costs of advertisements or communications permitted by the Rule.

The Committee pointed to Comment 7 which states that a communication contains a recommendation if it endorses or vouches for a lawyer’s credentials, abilities, competence, character, or other professional qualities. The bank’s form in this case only provides contact information for participating lawyers and indicates the lawyers on the list have been identified. And the borrower is told in each instance that he or she can choose a different lawyer.

The Committee said these limited statements hardly match up the verbs and nouns used to describe a “recommendation” in the comment because the language in the forms says nothing substantive about the credentials, abilities, competence, character, or professional quality of the listed lawyers.

The Opinion further stated that participation in the network appears to be open to any real estate attorney and that the fee appears to be reasonable considering the enrollment, onboarding, and maintenance charges for including attorneys in the network.

The short answer to the question was “yes”, a lawyer may pay the fee and participate in the network of legal service providers and be “identified” as a possible service provider.

It is interesting that the facts included this statement: “The package and disclosures are assumed to be compliant with federal and state requirements for loan applications and attorney-preference notices.” The Committee answered the very specific question put to it and clearly has no authority to address federal law.