Legal Ethics Opinion No. 1442
Real Estate Practice--Fees--Personal Interest Affecting
Representation--Competence--Zealous Representation: Lender's
Attorney Charging Release Fee to Debtor and Holding Documents From Recordation Until Debtor Pays Release Fee
You have presented a hypothetical situation in which Settlement
Attorney writes to the holder of a note secured by a deed of
trust for payoff information. The holder contacts Attorney, who
has previously drawn the note and deed of trust for his client,
prepared a modification agreement, and otherwise legally
represented his client, for assistance. Attorney calculates the
amount due and sends that figure to Settlement Attorney with a
letter on his law firm's letterhead that he represents the
client, and with instructions to send the payoff to him, along
with an attorney's fee for effecting the release. Neither the
note nor the deed of trust references an attorney's fee for the
release and you indicate that there is no prior agreement between
debtor and Attorney that such fee be paid.
Settlement Attorney advises the debtor of these facts, who then
informs Settlement Attorney that he objects to the payment of a
fee to Attorney for release. You indicate that Settlement
Attorney then tenders to Attorney the amount due for payoff,
along with a prepared certificate of satisfaction and a statement
that Settlement Attorney will take care of the release.
Attorney forwards the payoff to his client who accepts the
payoff; endorses the certificate of satisfaction prepared by
Settlement Attorney; and marks the note "paid in full". Client
then returns these documents to Attorney who informs Settlement
Attorney that he will hold the documents from recordation until
the debtor pays him his fee for release.
You further indicate that Attorney claims that he is acting as a
lender's agent in this matter; that lenders are entitled by law
to charge a reasonable fee for release; that Client is a private
lender who does not have the appropriate documents and does not
know the requirements; that Client is entitled to have someone
else prepare those documents for him; and, therefore, that
Attorney is entitled to a reasonable fee for securing the
release.
The committee responds to your inquiries relative to the facts
you have presented as follows:
1. With regard to Attorney's imposition on the debtor of a
fee for services to which the debtor has not consented,
the committee is of the opinion that, absent a
contractual agreement to that effect, it is unethical
for an attorney to impose an attorney's fee on a party
who is not a client unless there has been prior
disclosure and consent to the fee by the non-client.
Whether or not such a contractual agreement exists
raises a legal question beyond the committee's purview.
DR 2-l05(A); LEOs #425, #647, #878, #1228. In the
circumstances you describe, therefore, since an
attorney's fee for the release was not agreed to by the
debtor, the imposition of such an involuntary fee on
the debtor by the noteholder's attorney is improper.
2. With regard to Attorney's refusal to forward the
release papers provided to him by his client, unless
debtor agrees to pay a fee, the committee is of the
opinion that Attorney is prejudicing his own client and
intentionally failing to complete the task for which he
was originally employed by placing his personal
interest, i.e., receipt of a fee from the debtor, above
his duty to exercise his professional judgment on
behalf of his client, in violation of DR 5-101(A). SeeLEO #1346.
In addition, the committee believes that the conduct
described is violative of DR 6-101(B), in that the
refusal prevents the completion of the payoff for which
Attorney was hired by the client. The client has a
legal obligation, to have the lien created by the
corresponding deed of trust, once satisfied, released
of record. By refusing to have the lien released,
Attorney may be subjecting his client to potential, and
unnecessary, litigation. See LEO #974; ABA Informal
Op. l455 (June 4, l980).
The committee is of the further opinion that the
conduct described constitutes a failure to seek the
lawful objectives of the Attorney's client, in
violation of DR 7-101(A)(1). Since Client has evidenced
his satisfaction with the amount tendered by marking
the note "paid in full", Attorney's actions appear to
reflect a disregard for the client's wishes and
objectives.
3. Finally, with regard to whether a distinction can be
made, under these facts, between Attorney's services as
an attorney and his services as "lender's agent", the
committee directs your attention to LEO #1325, which
found that if an attorney acting in a fiduciary
capacity violates his or her duty in a manner that
would justify disciplinary action had the relationship
been that of attorney-client, the attorney may be
properly disciplined pursuant to the Code of
Professional Responsibility.
Thus, the committee is of the view that Attorney's
"lender's agent" designation is not determinative of
the applicability of the Disciplinary Rules. The
committee opines that regardless of whether Attorney
calls himself "attorney" or "lender's agent" in this
transaction, he is bound by the Virginia Code of
Professional Responsibility.
Committee Opinion
November 27, 1991
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