Lawyer who collected over $40K in title insurance commissions in 1 month failed to disclose, hearing body says
A Massachusetts lawyer committed an “ethical misstep” by collecting commission of 80% for his real estate clients’ title insurance without disclosing it, according to a hearing committee report.
“A violation is a violation” even if all lawyers follow the same practice, according to a May 27 report of the hearing committee of the Massachusetts Board of Bar Overseers of the Massachusetts Supreme Judicial Court.
The hearing committee recommended a suspension of a year and a day, with all but two months stayed, partly for Massachusetts lawyer Joseph A. Torra’s failure to disclose the commission to his clients who were buyers in real estate transactions.
The Legal Profession Blog noted the recommendation and published highlights from the report.
Torra’s clients paid more than $51,000 for title insurance in 38 real estate transactions in August 2019, the report said. Torra received more than $40,000 in commissions. He did not disclose that he was acting as the title company’s agent, and he did not obtain his clients’ informed consent in writing.
Torra also charged clients $200 for plot plan review fees that usually cost $125 and kept the difference, the report said. In the 38 transactions in one month’s time, he collected $2,425 in overcharges.
Title insurance protects buyers and lenders against title defects and liens.
The Consumer Financial Protection Bureau eliminated the requirement to explicitly disclose title commissions to simplify mortgage forms after the financial crisis, WBUR reported in 2022. Title insurance “is a big money maker” for lawyers and insurers across Massachusetts, the article said.
“In this state, title insurers pay large, hidden commissions to attorneys, WBUR found, and homebuyers unknowingly foot the bill,” according to the article.
The average commission is 80%, WBUR reported in April 2023.
If lawyers didn’t receive title commissions, their real estate fees would be a lot higher, a the leader of a state bar group told WBUR.
The hearing board acknowledged that the failure to disclose title insurance commission is “an allegedly common practice in Massachusetts real estate conveyancing.”
The Massachusetts Office of Bar Counsel addressed the issue when it published a December 2022 article online.
The article said lawyers receiving title commissions must disclose the cost of the policy, disclose their role in the sale of the policy, advise clients about the desirability of seeking independent legal advice about buying the policy, and secure written consent from clients.
Torra said the article was his first notice of the need to disclose commissions. He also said the commission that he received was standard practice in the industry. But the hearing board pointed to a comment to the governing ethics rule that says the need for disclosure applies to lawyers’ sale of title insurance.
“While it is not prohibited for a lawyer to sell title insurance, even to buyers, he is representing in the real estate transactions,” the hearing board said, Torra’s “ethical misstep was that he entered into these business transactions with clients without meeting the strict conditions of Rule 1.8(a),” which governs ethical requirements when lawyers enter business transactions with clients.
“Lawyers are required to know the Rules of Professional Conduct and those rules are enforceable even if no lawyer has previously been sanctioned for it,” the hearing board said.
Torra had also argued that the overcharge for plan review fees was “de minimis.” The report took issue with that characterization.
“No amount of money, effectively misappropriated from a client by a lawyer, is de minimis. We want to be clear that we do not consider this ethical transgression to be trivial,” the report said.
Torra should refund the plan review fee overcharges as a condition of the stayed suspension, the hearing board recommended.
Torra, who was admitted to the bar in 2004, practices in Lynnfield, Massachusetts. He told the ABA Journal that he could not comment until the matter is fully resolved.
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