FLORIDA BAR ETHICS OPINION
October 18, 1965
Advisory ethics opinions are not binding.
A lawyer who closes mortgage loans in behalf of a mortgage lender should disclose to a
purchaser-borrower title defects or clouds known to the lawyer (and to the title insurer), even
though the lender is protected by title insurance, when the purchaser-borrower is not represented by
an attorney and has direct dealings with the closing attorney.
Chairman Kittleson stated the opinion of the committee:
A member of The Florida Bar has requested the Committee’s advice on the
situation discussed below. His firm regularly closes FHA-insured mortgage loans in
behalf of a statewide mortgage company, and in connection therewith examines land
titles and approves issuance of title insurance binders and policies. In some
instances, the title to the property is held by the Federal Housing Commissioner as a
result of foreclosure or conveyance in lieu of foreclosure of an earlier FHA-insured
mortgage. From time to time in the title examinations, title defects or clouds appear,
often as a result of errors and inadequacies in the foreclosure proceedings through
which the Federal Housing Commissioner derived title. In each instance of this kind,
the title insurer has accepted an agreement from the attorney who made the error,
indemnifying the title insurer against loss by reason of the error, and the title insurer
has issued a mortgagee title insurance policy to the lender without pertinent
exception. The lawyer receives his fees from the lender, and not (at least not directly)
from the purchaser-borrower. Usually the seller bears this cost, but sometimes
arrangements among the seller, purchaser, and lender may shift all or some of the
cost to the purchaser-borrower. It is made clear to the purchaser-borrower that the
lawyer represents not him but the mortgage lender. The question is: should the
lawyer, as closing attorney acting in behalf of the mortgage lender, disclose the title
irregularity to the purchaser-borrower? He is concerned that disclosure of title
defects to a purchaser-borrower could cause him to withdraw from the proposed
transaction, to the displeasure of the lawyer’s client, the lender.
A majority of the Committee believes that the lawyer should disclose the title irregularity to
the purchaser-borrower, because to conceal the problem may mislead him in violation of Canon 9.
As a practical matter, where the purchaser-borrower is not represented by an attorney, he is likely to
rely upon the closing attorney to disclose any adverse title matters, especially if he is directly or
indirectly paying the attorney’s fees, and especially if he has direct communication and dealings
with the attorney. The Committee’s position could be different with respect to a lender’s attorney
who advises the lender on title matters but does not communicate or deal with the borrower.
A minority of the Committee believes that the lawyer would not be obligated to make the
disclosure, where the purchaser-borrower clearly understands that he does not represent him but
only the lender and clearly understands that the title insurance policy does not insure him but only
the lender. Perhaps this view is even more justified where the title irregularity is not a major one
and will be cured by the passage of time.