The First Professional You Should Hire is an Attorney
An attorney should be the first professional you hire. Provide them with our forms and involve them in negotiating the terms with your broker, lender or builder. They can be an essential advocate for you so long as they are impartial and have no conflicts of interest in representing you. Real estate attorneys (attorneys who have little real estate experience should be avoided) are typically the most knowledgeable and educated of any of the professionals you will hire.
Attorneys can also be useful at spotting red flags with your other service providers. See our survey of attorneys here (click here).
Do Attorneys Really Represent Their Residential Real Estate Clients?
For those consumers who do utilize real estate attorneys for a residential real estate transaction, the representation they often receive is compromised. We’ve identified two important conflicts of interest that regularly interfere with the representation consumers receive from their attorneys. 1. Most residential attorneys get their referrals from Realtors and that relationship interferes with the attorney’s ability to raise awareness to problems or even negotiate contracts on behalf of their clients. 2. Attorneys who sell title insurance to their clients have completely changed their financial interest in seeing the transaction close and are incapable of negotiating title issues on behalf of their clients.
When a Realtor Recommends an Attorney
If you are a Realtor, what better way to ensure that an attorney won’t undermine your deal or call attention to your error or malfeasance than to be that attorney’s referral source? Or better yet, hire the attorney for Realtor business and then recommend that same attorney to your clients. Attorneys are rarely invited into residential transactions. So when they are invited, are they likely to turn on their referral source? We don’t think so. Attorneys are supposed to be the “watchdog” in the transaction and they should be analyzing the legality of the transaction and looking for transgressions. They are supposed to be pledging absolute fidelity to their clients. But if they represent your Realtor too, that is called undisclosed dual agency. Undisclosed dual agency is a fraud and could result in the disbarment of your attorney. In other words, they shouldn’t be doing it. If your attorney feels beholden to your Realtor for referring business and that affects your attorney’s ability to call attention to your Realtor’s bad acts, then your attorney should decline representation. A good attorney can point out many problems in the representation that most people receive from Realtors. In fact, many times the Realtor misconduct is so outrageous that it could result in the forfeiture of the Realtor’s fee. But if your attorney works for your Realtor or receives referrals from your Realtor, your attorney is not going to be motivated to identify or disclose the misconduct that he or she finds.
Attorneys Should Not Sell Title Insurance To Their Clients
It is ok for an attorney to sell title insurance, just not to their own clients. When an attorney representing a client offers their client the additional “service” of selling them title insurance, that attorney is doing a terrible misservice to their clients and likely guilty of self dealing. An attorney is the ultimate fiduciary. They owe their clients absolute fidelity and must represent their client’s interests above all others, especially their own. Abusing that special relationship to dip into extra profits is just wrong. In fact, it is likely unethical too. See article by Patrick R. Burns, First Assistant Director, Minnesota Office of Lawyers Professional Responsibility entitled, “Avoiding conflicts in the sale of title insurance to clients.” (click here) An attorney who sells title insurance to his client creates an interest for himself in the outcome of the transaction. Wearing just the attorney hat the attorney does not have a financial interest in seeing the transaction close and can provide unfettered advice. However, the attorney’s advice becomes suspect once they have decided to sell title insurance. Now they don’t receive their hefty title insurance commission if the transaction doesn’t close. And those title insurance premiums can easily exceed a thousand dollars. To make matters worse, part of the attorney’s job is to negotiate the terms of the title insurance coverage. Is the attorney really expected to negotiate against himself? And who exactly does the title insurance selling attorney represent? The underwriter to whom they owe agency duties? The lender to whom they owe many duties as a title agent for which they owe none as just an attorney. Themselves, since they are essentially pocketing money from the client and eliminating the service of helping the client shop and compare title insurance providers? Or the client? We believe it is illegal and a terrible breach of fiduciary duty for attorneys to sell title insurance to clients. It is our hope that we will see litigation in this area and that this widespread practice will stop. Finally, we would like to see attorneys return to the residential real estate process unhindered by conflicts of interest. As it stands now, many attorneys have so conflicted themselves that they have become part of the problem.