Ethics Hotline & Opinions

ETHICS DOCKET NO. 1998-34


MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 1998-34

Attorney in a foreclosure matter collecting commissions on the issuance of bonds required as part of the foreclosure


You ask five questions: (a) whether an attorney in a foreclosure matter may collect commissions on the issuance of bonds required as part of the foreclosure; (b) whether a disclosure is required if such activity is permitted; (c) whether the language you propose will be approved by the Committee; (d) whether a conflict of interest exists if the broker/agent attorney is also the trustee in the foreclosure and (e) whether a conflict exists where the broker/agent is employed by the same law firm as the trustee and by a separate insurance corporation established for purposes of writing bonds.

Please be advised that to the extent that your inquiry raises questions of law or procedure under applicable foreclosure laws, rules and regulations, the Committee does not offer opinions on legal issues. In addition, the Committee emphasizes that we have not examined any of the foreclosure laws, rules or regulation, including any relevant local rules, regarding the collection of commissions on the issuance of bonds related to a foreclosure. This Opinion also does not address any potential requirement of any laws, rules or regulations which may require disclosure of the commissions to any court or government agency.

Conflicts of interests are addressed generally by Rule 1.7 of the Maryland Rules of Professional Conduct. Rule 1.7(b) deals with the conflict that can arise when an attorney's personal financial interest is directly involved in the representation of a client. It provides:

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected: and

(2) the client consents after consultation.

Rule 1.7(c) sets forth the requirements of the disclosure.

As you correctly point out, the Committee has, occasionally, issued opinions regarding a related scenario, i.e., where an attorney seeks to collect commissions on title insurance policies issued as part of a real estate settlement where the attorney represents one of the parties to the settlement. Your situation regarding a foreclosure is indeed similar. The attorney's financial interest comes in to play where that attorney stands to receive a commission from the bonds for which the attorney acted as agent.

The Committee believes that such a conflict may be waived by the client following proper disclosure of the conflicts Such disclosure must be made before the client selects the bonding company represented by the attorney and before the client agrees to use that company. The client must be provided with the opportunity to avoid the conflict and seek a bond from a company unrelated to the attorney. If the client is provided with the information required by Rule 1.7(c), the conflict may be waived by the client.

You have asked the Committee to evaluate the terms of the disclosure. The Committee's practice is that it does not review particular language for disclosures. We refer you to Rule 1.7(c). We also refer you to the Comments to the Rule, specifically, the paragraphs titled ""Consultation and consent"" and ""Lawyer's interests.""

Similarly, for the above reasons, if the attorney acts as the trustee for the sale in the foreclosure, such a conflict can be waived by the client after consultation. As a trustee, the attorney must always act in the best interest of the client. The attorney must disclose in advance of the transaction what the conflicts are if he or she is to be the trustee.

Finally, you ask whether a conflict exists where the attorney who is the broker/agent for the bonding company is employed by ""by the same law firm as the trustee"" and also by a separate insurance corporation established for the purposes of writing bonds. First, the fact that different attorneys in the same firm act as trustee and broker/agent does not alter the requirements of Rule 1.7(b) and (c). See Rule 1.10 (Imputed Disqualification: general rule). Thus, your question in essence is whether an attorney who is acting as broker/agent and trustee can also be employed by the bonding corporation.

Again, this situation is similar to the above scenarios. Such a proposition creates a conflict under Rule 1.7(b) but it can be waived by the client after consultation. In this situation, in addition to disclosing the attorney's financial interest in the commission, the attorney must also disclose his or her financial relationship with the bonding company as employee/employer.

Please remember that any fee obtained by the attorney must be reasonable. Rule 1.5(a). Also, you may be required by law to disclose to the court in any financial filing regarding the estate accounting or fee requests the amount of any commissions you receive.

 

DISCLAIMER: Opinions of the Maryland State Bar Association (MSBA) Ethics Committee are an uncompensated service of the MSBA. This Committee’s opinions are not binding on the Maryland Court of Appeals, Maryland Attorney Grievance Commission, MSBA or this Committee. The reader is advised that subsequent judicial opinions, revisions to the rules of professional conduct, and future opinions of this Committee may render the Opinions stated herein outdated. As such, the Committee’s opinions are advisory only and neither the Committee nor the MSBA assumes any liability whatsoever with respect thereto. Accordingly, reliance upon the opinions of this Committee is solely at the risk of the user.