Opinion 2085

An inquirer asks about the propriety of accepting referrals from a specific lending company [name and identifying details have been redacted].

The lending company markets itself as a direct lender doing business across the United States, and claims to be affiliated with a major west coast mortgage bank. The lending company’s marketing materials indicate it routinely sells loans on the secondary market to other mortgage companies – the marketing materials mention prominent mortgage companies.

The lending company uses attorneys in place of mortgage brokers, presumably as a competitive advantage. Its web site states the attorney’s role is limited to the simple practice of law such as document review and legal consultation.

The lending company’s promotional materials state they provide free training and assign a staff underwriter to each and every loan. The web site for the lending company indicates the training lasts 30 minutes by conference call. The content of the training is not specified. This memorandum assumes that the training focuses on how to properly complete the forms and other procedural requirements of the company’s loan process.

The lending company’s promotional materials state the attorney is to bill their client for their time. It is unclear whether the lending company provides financial incentives to the attorney or expects a fee of some sort for referring clients to the attorney.

QUESTION:

Is it permissible for an attorney to enter into a relationship with the lending company wherein the attorney assumes the responsibility of a mortgage broker on behalf of the client?

ANSWER:

Based upon available information found or provided to date, it appears to us that the lending company’s arrangement might present a violation of Rule 7.2(c) in Washington because it contemplates a reciprocal referral arrangement which would constitute the lawyer giving something of value to another in return for referrals. The arrangement might also run afoul of Rule 1.1, 1.7, 1.8(f) and 5.4(c), depending on how it was structured and its affect on the lawyer’s delivery of competent legal services.

An attorney must protect the interests of his or her client by providing competent and impartial legal advice to the client (RPC 1.1). An attorney must also avoid conflicts of interest, including conflicts between the lawyer’s financial interest and the interests of clients (RPC 1.7). Neither may an attorney give anything of value to a person in return for client referrals (RPC 7.2); nor accept compensation from a third person for providing legal services to a client unless the client gives informed consent, there is no interference with the lawyer’s independence and confidential information is protected. RPC 1.8(f), nor may an attorney accept referrals from another if the other interferes with the lawyer’s professional judgment. RPC 5.4(c).

While the lending company’s materials are somewhat unclear as to the precise nature of the referrals and/or cross-referrals involved, it appears that the lending company is offering to refer loan customers to “registered” attorneys and, in return, expects such attorneys to recommend the lending services of the lending company. Such a reciprocal referral arrangement may constitute an impermissible giving something of value to the lending company in return for referrals in violation of RPC 7.2(c). The Committee notes that the Board of Governors has sent to the Supreme Court a proposed revision of RPC 7.2 which would expressly permit reciprocal referral arrangements between lawyers, but not between lawyers and nonlawyers.

In addition, the expectation of such referrals and the fees to be earned from them (the lending company’s materials suggest that lawyers might earn a commission as a loan broker) could constitute a conflict of interest under RPC 1.7(b) since it might materially limit the attorney’s ability to competently represent the client. If Rule 1.7(b) were to be triggered, any attorney would need to conclude reasonably that the conflict would not adversely affect the client and would also need to obtain the client’s informed consent in writing. Finally, it is possible that such an arrangement could interfere with the lawyer’s professional judgment in violation of RPC 5.4(c).

It does not appear that the lending company is offering to pay registered lawyers for referrals (apart from cross referrals) but if this were done, it would need to be done in strict compliance with RPC 1.8(f), which imposes restrictions on lawyers being paid by a third person to represent a client.

The arrangement might also lend itself to a contingent fee agreement under which the attorney would charge a fee only if the client qualified for a loan with the lending company. If there were such a contingent fee arrangement, the attorney would need to discuss in advance with the client the fee arrangement and provide a written fee agreement in compliance with Rule 1.5.