ANNAPOLIS -- Legislation that would require title companies to give the state a significant chunk of their income got a major boost this week from a decision by a legal disciplinary board.
Thanks to an opinion by the Maryland Attorney Grievance Commission,lawyers who set up title companies may keep the interest earned when they briefly hold their clients' money in trust accounts.
The interest builds when a person buys a home and passes the purchase money first through the title company and then to the seller. A title company that processes thousands of those transactions a year can earn substantial income.
Attorneys in law firms, however, are required to donate that interest to fund legal services for the poor and are pushing for legislation to require title companies that are owned by attorneys to do the same.
Supporters believe the ruling will provide ammunition for passing the legislation because it threatens to staunch the flow of legal funds for the poor.
The legal code of ethics forbids lawyers from keeping the interest. And, since 1989, they have been required to turn over the money to the Maryland Legal Services Corp., which funds legal services for the poor. Last year, the non-profit group received almost $5 million from these lawyers' interest payments.
But many lawyers avoid the restriction by setting up title companies.
Two bills before the legislature this year would force title companies, whether owned by attorneys or not, to pay the interest to the state to help fund low-income housing programs.
The ruling from the attorney grievance commission resolves the ethical dispute in favor of lawyers who own title companies.
Legal observers say it provides an incentive for lawyers who do real estate work to set up a title company -- if they haven't already done so -- and keep the interest.
Unless the General Assembly passes one of the title company interest bills, "I believe the funding for [Maryland Legal Services] will diminish," said Seymour Stern, a past president of the state bar association who requested the ruling from the disciplinary board.