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March 1, 2014
Opinion allowing title companies to audit trust accounts revised

By Gary Blankenship
Senior Editor

A proposed ethics opinion on whether title insurance companies should be able to audit trust accounts containing funds for transactions they don’t insure has been modified by the Professional Ethics Committee.

The committee, which met at the Bar’s Winter Meeting, accepted some modifying language proposed by the Real Property, Probate and Trust Law Section.

The PEC has been struggling with the issue for almost two years following passage of a state law in 2012 (F.S. §626.8473(8)), which allowed title insurance companies to audit trust funds, unless there was a contrary Bar rule.

At issue were competing claims that such audits would help clients avoid defalcations by dishonest attorneys and that the audits could reveal information about clients in transactions not insured by the auditing company, in violation of Bar rules about protecting all information involved in a representation.

PAO 12-4 originally concluded that attorneys “may not permit multiple title insurance companies to audit a single trust account used exclusively for real estate and title transactions, unless the lawyer reasonably concludes that permitting the audits would serve the affected clients’ interests and the affected clients have not prohibited disclosure of the information.”

The opinion said if lawyers concluded that trust account audits were not allowed, they could maintain a separate trust account for each title insurance company they use, get each client’s informed consent if the lawyer or law firm uses one trust account, or get consent from title insurance companies to audit only the funds they insure in a trust account.

The RPPTL Section, in a letter from Chair Margaret Rolando, said those alternatives were largely unworkable and offered less protection to clients. The section proposed adding this sentence after the word “information” in the conclusion: “Of course, in recognition of the value of title insurance underwriter audits in assuring the safety and proper disbursement of funds deposited into a special trust account, it is reasonable for an attorney to conclude that such an audit would be reasonably necessary to serve the affected client’s interests.”

After debate, the PEC voted 24-5 to accept that language after deleting “Of course” and changing “it is reasonable” to “it may be reasonable.”

“Real estate lawyer defalcations are a serious problem in Florida. Our section strongly believes The Florida Bar should do everything possible to protect client funds,” said John Neukamm, representing the RPPTL Section. “We believe this language [proposed by the section] makes it much harder for an unethical lawyer to use this opinion to shield or hide [improper] activities.

“You have not received any evidence or a single incident where a title insurance company’s audit has harmed the client,” he added.

But Bruce Gorland, the attorney who submitted the initial inquiry to the PEC, said Bar rules require protecting all client information, and not just information from discussions between the attorney and client.

“I’m not sure a client never having been harmed is the criteria for divulging confidential information,” he said. “If we have a presumption this is reasonable and then tie the statute in, then you’re going to have a requirement, and I think the requirement would lead you to violate the [confidentiality] rule.”

Committee member Jay Hunston said the proposed opinion was circumventing an obvious solution: tell the clients about the potential audits by uninvolved title companies.

“The rule, if we look at Rule 4-1.6, is a lawyer shall not reveal information except with the client’s informed consent. We get informed consent from clients many, many times,” he said. “We need to tell our clients. I just don’t see why we don’t tell clients.”

But committee member Mark Criser agreed with the RPPTL concerns.

“I think that the concerns raised by the RPPTL Section are all legally valid and practical,” he said. “I truly am most compelled by [the claim] this opinion [as originally approved] could be used by unethical lawyers to prevent audits of their records.”

Since the change to the opinion is not considered significant, the opinion will become final 30 days after the committee’s action unless someone who filed comments with the committee requests a review by the Bar Board of Governors. A complete text of the proposed opinion is on the Bar’s website under proposed ethics opinions.

[Revised: 12-02-2017]