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January 7, 2009
Atty/Broker Conflict of Interest
I am selling my condo and hope to close on an offer that just came in. My broker recommended a particular RE lawyer to do the contract of sale and closing. Does anyone foresee a problem using a real estate attorney who came recommended by our broker? Any possible conflict of interest in this scenario? any reason why the lawyer might not have our best interests at heart?
Comments
I'd avoid this situation. We didn't, and while our first closing with a lawyer recommended by our broker went smoothly, the next one didn't. I just felt like the lawyer was trying to bulldoze us into closing as fast as possible, perhaps so the broker would throw more business his way.
I've also come to realize that brokers know absolutely nothing about the law.
In other words, find a lawyer through friends or others whom you trust.
Posted by: Bolder at January 6, 2009 6:22 PM
Yeah, I would just go with an independent attorney.
Posted by: mopar at January 6, 2009 6:31 PM
otoh, I used a broker-recommended atty for two transactions and was completely happy. If you like your broker, maybe you'd like their atty.
Posted by: denton at January 6, 2009 6:51 PM
It's a bigger conflict when the broker gives the buyer an attorney referral. But you want someone independent nonetheless.
Posted by: slopefarm at January 6, 2009 9:49 PM
many thanks for this feedback - will consider indie attys
Posted by: djdevvydev at January 6, 2009 10:39 PM
David Fainkick
david@dfainkich.com
he was recommended to me by my "buyers broker" and I used him subsequently for additional legal work. He's now working on my estate.
Highly recommended
Posted by: daveinbedstuy at January 7, 2009 8:32 AM
There's no conflict per se - their interests are the same, and neither the lawyer nor the broker stands to gain anything from a botched closing - if the broker recommends a bad lawyer to a client, or vice-versa, then in the end, it will reflect poorly on both parties and they will both lose potential future business. These people depend on repeat business and good word of mouth from their clients, so its in their interests to make referrals to competent professionals.
Posted by: jnjnjn2 at January 7, 2009 9:10 AM
I second what jnjnjn2 says. At the very least a broker is going to recommend a lawyer who deals primarily with real estate. This is a good thing when/if things become a problem. other lawyers that do not deal with the ins and outs of real estate in NYC can be a liability to you. Do not ever use the lawyer who is a family friend but doesn't really do much real estate work.
Posted by: daveinbedstuy at January 7, 2009 9:16 AM
Yeah the worst thing is a lawyer who doesn't know how to close in NYC. On seller I dealt with had a personal lawyer who wanted to do the process according to her textbooks and it didn't go well.
Posted by: jawbreaker at January 7, 2009 9:47 AM
Respectfully don't agree. There is a conflict of interest. The broker wants a smooth closing whereas you want a fair contract executed fairly and all issues brought to light by your lawyer so you can make an informed decision about them.
OK, in practice, kinda the same thing, but not always. Their recommended lawyer's probably fine. But why take the chance when there's a lot of good lawyers out there.
Posted by: Johnny at January 7, 2009 9:48 AM
So where's the conflict then? The lawyer does not represent the broker, and is required by law to act on behalf of, and in the best interests of his/her clients - if the lawyer somehow capitulates to the interests of the broker over those of the clients, then that lawyer is in deep doodoo. Not only does he/she get a bad reputation, but could also face disciplinary action if there is a complaint. There is no upside for the lawyer to do this, only downside, and the money to be made from a closing is minimal compared to the potential liabilities.
Posted by: jnjnjn2 at January 7, 2009 10:05 AM
As a former Real Estate Agent, I can tell you that generally speaking, its an advantage to use an Attorney that has a relationship with the Broker. The Attorney has obviously worked with the Broker before and because of this, and the prospect of working on future deals, the Attorney will do everything possible to make the deal happen, while still acting in the best interest of the client.
A Broker's main concern is to get the deal done, and you might view that as a conflict of interest, but in reality its not. An attorney is obligated by law to protect their client's interest, but I've seen many who let their egos get in the way. The best attorney will do two things: protect theit client, and compromise where necessary to get the deal done.
You have every right to choose your own attorney, but make sure it comes as a recoomendation from someone who's had a positive experience with him/her.
Posted by: rkohlny1 at January 7, 2009 10:17 AM
Here's the problem, I think. One of the reasons you get a lawyer is on the off-chance there's a reason you should *not* want to "get the deal done." In that case there may be a conflict -- the lawyer may hesitate to give you the bad news about the deal (say, she or he's reviewed the co-op minutes and discovered the board is in total disarray) because he is indebted to the broker, who needs the deal to go through. I know it would be unethical of the lawyer to withhold this information, but I've known of lots of lawyers doing unethical things that were in their monetary interest. Always best to get somebody with no potential conflict.
And by the way, my experience is that "Real Estate Agents" have at best a dim understanding of what a conflict of interest is.
Posted by: David Lewis at January 7, 2009 10:44 AM
Yeah, what David Lewis said. Theoretically, a lawyer with a good income stream from a broker is in reality also beholden to the broker. Who gets paid only when the deal goes through.
The fact that someone is obligated by law to represent my interests and my interests alone doesn't make it so. Same could be said of mortgage brokers pushing bad loans. Of course, the vast majority of loans "pushed" were appropriate for the buyer. But some weren't.
Granted, I'm making a much bigger deal of this than the situation warrants. It's a minor theoretical issue. But I wouldn't take a broker's recommendation for a lawyer.
Posted by: Johnny at January 7, 2009 10:53 AM
Agree with DL and Johnny. There is a lot of gray area before you get to a real ethical violation. Does the attorney downplay bad information, say things like "this is common" or "it's nothing to worry about" or "you don't really have negotiating leverage" or "it's done this way all the time" when an aggressive response might get the other party to back down? There are lots of ways an attorney can communicate with you or not about a deal, all of which shape your reactions. I want to know that my attorney has my back and my back only.
I was lucky to have that kind of representation in a deal that went very, very sour (she's not practicing in Brooklyn anymore, or I would make the referral). In a normal deal without problems, you probably wouldn't know the difference. But part of the lawyer's job is to protect you from problems you can't see, not just to get the papers handled right.
Posted by: slopefarm at January 7, 2009 11:08 AM
We used the attorney our broker recommended and were very happy with her. She went above and beyond in helping us with some lingering issues. She's become a friend and we will use her again in the future even if we don't use the same broker again.
I don't see how any successful attorney in NYC would be so entirely dependent on broker referrals he/she would willingly breach fiduciary responsibility when making a deal for a client. Any respected, successful RE law firm will have an existing client base (incl. developer and commercial clients bigger than we little people buying condos and the like) and get new clients via word of mouth from existing clients as much if not more than from brokers. But if getting the referral from your broker makes you nervous then ask friends who their attorney is.
Don't confuse this with inspectors though -- you shouldn't ever use the inspector your broker recommends.
Posted by: traditionalmod at January 7, 2009 11:19 AM
While I did this and didn't exactly see a concrete problem, I wouldn't do it again.
I think that Johnny and DL have a healthy skepticism.
Posted by: vanburenproud at January 7, 2009 11:31 AM
We've recommended an attorney who all parties had been happy with many times; I've seen people reject our advice and get nailed by attorneys who don't communicate with their clients, who go on un-announced vacations, etc., and of course we've seen outside attorneys who are great. There are lots of pain in the ass attorneys out there who will ruin your deal, so if you don't take the advice of your broker, at least take the advice of someone else you know who has had a good experience...
Posted by: lalaland at January 7, 2009 11:32 AM
There is no gray area - either the lawyer acts in the best interests of his/her client or he/she doesn't. If the lawyer acts improperly, make a complaint to the Bar - this is, by far, much more of a pain to deal with for an attorney than the money to be earned from a closing. Just like any profession, there are some bad apples, but by and large you shouldn't dismiss a recommendation just because of that. Don't blindly accept a recommendation - talk to the attorney, see if call you back promptly, undertake some due diligence before retaining the atty.
Posted by: jnjnjn2 at January 7, 2009 11:33 AM
I meant gray area as in difficult to detect. If you hire the broker-recommended lawyer and something that seems fishy arises and the lawyer downplays it in discussion with you, how are you to tell whether that is the lawyer's candid and loyal advice or whether the lawyer is shading it out of dual loyalty. Most people like to trust their lawyers (if no one else's) and in these circumstances it would be hard to tell. I think that the shading is unethical if due to a divided loyalty, but if the lawyer's statement is true enough but the tone or emphasis is off and might give more comfort than is warranted, it will be hard to establish the violation. There are certainly times reasonable lawyers could differ in their advice while all being competent and loyal, and I am concerned that it is within that play in the joints that a conflicted lawyer could operate.
Posted by: slopefarm at January 7, 2009 12:02 PM
"There is no gray area - either the lawyer acts in the best interests of his/her client or he/she doesn't."
There's always a gray area -- if you don't think so, you haven't much experince with the world. Moreover, I don't think anybody wants to go from a souring real-estate purchase into a complaint process against their prior lawyer. That's doubling the no fun -- unless you really love being a litigant (and are thus clinically demented).
The trick is to avoid trouble in the first place by hiring somebody who's got no incentive to make a wrong decision or give wrong advice because of his/her loyalty to the broker. Easy enough to do. Get a recommendation from a friend. Or even from a different broker! Make sure the person is experienced in deals involving your kind of property. But get somebody who is totally independent of all parties in your deal.
I note that it is the brokers above who really like having their lawyers chosen. Hmm, wonder why that is? (I agree, of course, that it will make absolutely no difference, not even a theoretical difference, in 75-95% of cases, but you don't want to test the theory out if by chance you fall into one of the remaining cases, where it might make a difference, do you?)
Posted by: David Lewis at January 7, 2009 12:11 PM
I am a broker and an lawyer. There is no conflict of interest. The lawyer represents you and not the broker. A lawyer would not jeopardize their license for a fee of anywhere between $2K-3500. I would ask for more than one recommendation and ask friends who have had closings in the same neighborhood. It may sound strange but real estate can be very local and you would want an attorney familiar with the area because they will then be more knowledgeable about the deal you are getting.
Posted by: broker at January 7, 2009 12:16 PM
I undesratnd - that's not a conflict, that's just being a bad lawyer.
Posted by: jnjnjn2 at January 7, 2009 12:20 PM
No need to knock my opinion - I have much more experience than you might assume. To me, there is no grey area here - either you do the right thing or you don't.
A simple letter to the Bar is all that is needed - very easy and a real pain to the lawyer thereafter.
If the lawyer is experienced and has done a lot of closings in a particualr neighborhood, then he's going to know most brokers, etc. - its just a fact.
Posted by: jnjnjn2 at January 7, 2009 12:32 PM
"The lawyer represents you and not the broker."
But why should you ever hire a lawyer who has an actual incentive not to represent you as strongly as you might wish? What possible reason would you have for hiring somebody even with even a potential conflict of interest? Why should you be an idiot? There's no shortage lawyers capably handling real estate in Brooklyn.
No hard feelings, brokers and lawyers, but money, and the opportunity to make it, talks. Folks, don't let somebody else's money be talking to your lawyer.
Posted by: David Lewis at January 7, 2009 1:04 PM
Just watch out for the Jewish holy days if you're planning a closing!!!!
Posted by: daveinbedstuy at January 7, 2009 1:25 PM
That is illogical - the lawyer has no incentive to cater to the interests of the broker over his/her client. There is nothing to be gained, financially or otherwise.
Its easy to make generalizations and snap comments, like "money talks", but without any substative basis for doing so, they mean nothing.
Posted by: jnjnjn2 at January 7, 2009 1:25 PM
"That is illogical - the lawyer has no incentive to cater to the interests of the broker over his/her client. There is nothing to be gained, financially or otherwise."
Oh, come on! Everyone agreed above that the broker's interest is in "getting the deal done," and that he chose a lawyer who would do that. That lawyer earns a few thousand dollars every time the broker recommends him or her. That lawyer expects to earn many thousand more in the future via this route. That lawyer has a real monetary incentive not to put obstacles in the way of a deal, even if they're in his client's interest, to keep the money coming. 'Cause a lawyer who causes problems is not, by definition, interested in "getting the deal done," and may well not get further recommendations.
If that's illogical, I'm a real estate broker. Your assertion that there is "nothing to be gained" by the lawyer is, moreover, absurd (and suggests you haven't swum around this polluted world for long).
There's a lot of "faith based" commentary going on here -- lawyers never sell their clients even a little bit short, brokers are entirely even-handed in deciding what lawyers to recommend, etc. Ignores the real world.
Posted by: David Lewis at January 7, 2009 2:17 PM
I am so sick of some of the advice that people give on this board. You all think you have the answers and you all think your answers are the only ones that are right.
Here's one way to look at this: your broker recommends an attorney who they have probably had success with, like, respect, and know a deal will usually go smoothly when that particular attorney is part of the deal. There are some top notch RE attny's out there and those are the ones that probably get recommended over and over. Its the same with contractors. If you've had success with a contractor who is good why not refer him/her? Some folks offer kick backs if they get the job, others like the relationships that are built for their businesses.
In your line of work, don't you like to continue working with those that make your job easier and better? Yes, you hope that a deal will close faster but nothing is gained when a deal is f***ed up so why would you recommend an attorney that sucks?
I say if you like and trust your broker you have no reason not to trust their recommendation. Besides, interview them first (about $ and any other questions regarding the process) if you like what you hear, then there you go. If not, interview others. Get 3 names and see who you are most comfortable with and go from there.
Posted by: oohlala at January 7, 2009 2:41 PM
It doesn't ignore the real world - say this happens as frequently as you may think it happens, do you think that the broker and lawyer who screw their clients time and again will keep on getting business and/or referals? The returns are diminishing for a broker and lawyer who engage in this type of conduct - and say a lawyer did this 25 times before getting caught/disclplined - after that, he would be done - and for what, an extra $50,000 or so in his/her pocket - that's not exactly retiring money and to boot, his/her career would be over.
I've swam plenty long in this alleged "polluted world" to know of what I speak and have actual experience, as opposed to some shallow view from the outside. Sure there are some bad apples, but like anything, if you engage in some simple due diligence, these problems can be easily avoided.
Posted by: jnjnjn2 at January 7, 2009 3:00 PM
I am not an outsider to all of this. I have been through a number of transactions as a client. I have dealt with realtors who tried really hard to push their inspectors and lawyers on me. I have dealt with others who stayed more neutral, which I was happy about. I went with a referred inspector once and was not totally happy about it. I went with my own another time and was happier, although not completely. I used my own attorney both times and was pleased with the representation. I also had a deal go terribly wrong (not the deal with the broker pushing referrals) and I cannot say with any confidence that a realtor-referred attorney would have fought as hard and as well for me as my attorney did, and that I needed every ounce of that fight. An attorney with dual loyalties might very well have managed to stay within the ethical lines without accomplishing nearly as much. Whether or not the entire Brooklyn RE world is polluted, I definitely wandered into corner of it that would qualify for an ethical Superfund cleanup and I am glad I did not have to reflect for a second on my attorney's loyalties.
Posted by: slopefarm at January 7, 2009 3:15 PM
I know from experience that the relationship between broker and lawyer are not even close to cozy as some want to suggest. There is no "one hand washes the other." In fact there is even some contempt on the part of the lawyer against the broker in that the broker stands to make a huge amount of money on the deal as compared to the lawyer. Most lawyers even make the broker jump through a lot of hoops and leg work between the accepted offer to the final closing because they feel the broker is making the money he/she should do the work. I don't know of any lawyer that would compromise their client in the hopes of more referrals from a broker. It is just ridiculous. I am not saying all lawyers are ethical. I am just saying that there is no real substantial monetary incentive for the lawyer to compromise their license. You give the broker way too much power if you think he/she is lining the pockets of recommended attorneys with so much money that they would sell their client down the river. It's just not that much $ in the end.
Posted by: broker at January 7, 2009 4:39 PM
With respect broker, I see lawyers do outrageous shit all the time. Indeed, I see judges do outrageous shit all the time.
And yes, by "outrageous shit," I mean shit that would "compromise their license."
I know that this topic has been beaten to death djdevvydev, and you probably already lost interest.
But if you want this humble lawyer's advice: re-read David Lewis's comments and act accordingly. Slopefarm at 12:02 has it right too.
Posted by: Come Clean at January 7, 2009 5:59 PM
Obviously there is no real conflict of interest, or the state bar would have guidelines in place to prevent this. It's just that there are a number of plausible motivations that you won't be aware of.
Part of it is also that in my opinion it's never a bad idea to have some distance between the various parties in a transaction like this. Obviously plenty of people have done just fine using a broker-recommended lawyer; as I said, our experiences were good and bad. And just as obviously, the vast majority of lawyers are scrupulous about ethics and have their clients' interests at heart.
Next time, though, we will find our own lawyer, and I would advise others to do so. As for the poster complaining about advice on an online bb...well, you get what you pay for.
Posted by: Bolder at January 8, 2009 10:37 AM
This may be a little off target, but I think there are fundamental issues regarding realtors and their "interest" in any deal. I personally believe that realtors (some, not all) bear a significant share of the responsibility for the present real estate bubble and its consequences. Who do they represent in any transaction? Will they counsel a potential buyer as to the dangers of obtaining too large a mortgage or simply refer to a broker who will obtain the necessary funding (and send a little commission back)? Will they recommend an appraiser & inspector who will be honest and forthright, or will they suggest someone who will let the deal get done? Bottom line, it is buyer beware - ultimately, it is greed that dictates motivation - I would get my own attorney.
Posted by: sjtmd at January 10, 2009 4:05 PM
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