Legal Ethics Opinion No. 1436
Real Estate Representation--Conflict of Interest--Multiple
Representation: Lender's Attorney Advising Unrepresented Borrower
You have presented a hypothetical situation in which Bank A, a
state chartered bank and member of F.D.I.C., makes purchase money
loans and re-financing loans on residential property. You
indicate that loan officers of Bank A do not advise borrowers
that they need an attorney for the transaction nor are the
borrowers asked the name of their attorney. Rather, borrowers
are told by the loan officers that "We will take care of
everything," or "We will send the papers to Attorney X, the
Bank's attorney," or "Attorney X handles these loans for us".
Attorney X then prepares the loan documents, certifies title to
Bank A, bills the borrower and either sends the documents to the
borrower for signatures or advises the borrower of the date and
time to come to the law office for execution of the documents.
Attorney X is the named trustee on the deed of trust.
You have asked the committee to opine on several questions
related to the facts of your inquiry:
1. If the attorney representing the lender does not
represent the borrower and the borrower does not have
his own attorney, is the lender's attorney ethically
required to advise the borrower that he is, in fact,
the lender's attorney and not the borrower's attorney,
when, in spite of such representation, the borrower is
being billed for the lender's attorney's services?
2. If the attorney representing the lender does not
represent the borrower, and the borrower does not have
his own attorney, is the lender's attorney required to
advise the borrower that the borrower has a right to
obtain his own attorney to represent his interest?
3. If the attorney representing the lender does not
represent the borrower, and the borrower does not have
his own attorney, is the lender's attorney ethically
required to advise the borrower that the attorney has
obtained title insurance for the lender only and that
the title insurance does not apply to any of the
borrower's equity, but that the borrower could obtain
additional title insurance in borrower's name to
protect such equity?
4. If the attorney representing the lender also represents
the borrower, is the attorney ethically required to
give a full disclosure of this multiple representation
to the borrower so that the borrower has full knowledge
of the potential conflict of interest and the
possibility that the attorney could in the future, in
his role as trustee, act in an adversarial role in the
event of the borrower's default?
5. If the attorney representing the lender serves in any
other capacity with the lending institution, other than
lending attorney, such as serving on its board of
directors, loan committee, or other committee, should
that additional conflict of interest be disclosed to
the borrower if the lender's attorney is representing
both the lender and the borrower?
6. If the lending attorney represents the lender and the
borrower and obtains title insurance for the lender, is
the attorney ethically required to inform the borrower
that the title insurance is only for the lender and
that the borrower is not protected with insurance on
equity in excess of the loan unless borrower obtains
his own separate policy?
The appropriate and controlling Disciplinary Rules relative to
your inquiry are DR 5-101(A), which provides that a lawyer shall
not accept employment if the exercise of his professional
judgment on behalf of his client may be affected by his own
financial, business, property, or personal interests, except with
the consent of his client after full and adequate disclosure
under the circumstances; DR 5-104(A), which prohibits a lawyer
from entering into a business transaction with a client if they
have differing interests therein and if the client expects the
lawyer to exercise his professional judgment therein for the
protection of the client, unless the client consents after full
disclosure, and provided that
the transaction was not unconscionable, unfair or inequitable
when made; DR 7-103(A)(2), which states that during the course of
his representation of a client, a lawyer shall not give advice to
a person who is not represented by a lawyer, other than the
advice to secure counsel, if the interests of such person are or
have a reasonable possibility of being in conflict with the
interests of
his client; and DR 7-103(B) which states that in dealing on
behalf of a client with a person who is not represented by
counsel, a lawyer shall not state or imply that the lawyer is
disinterested.
Disciplinary Rule 7-103(B) further states that when the lawyer
knows or reasonably should know that the unrepresented person
misunderstands the lawyer's role in the matter, the lawyer shall
make reasonable efforts to correct the misunderstanding.
The committee opines as to your questions as follows:
1. The committee has previously opined that a bank, like
an individual, has the right to secure legal counsel of
its choice to protect its interest, as well as the
interest of the shareholders and customers. See LEOs
#ll20, ll5l.
In the facts you present, however the committee opines
that, if the attorney is engaged to represent the
lender only, that fact should be communicated to the
borrower, under the mandates of DRs 7-103(A)(2) and
7-103(B), so that the borrower may exercise his right
to independent counsel of his choice.
Your remaining question regarding the legality of the
bank's billing of the borrower for the lender's
attorney's services, may be resolved by your attention
to Va. Code 6.l-330.70 et seq., the interpretation of
which is beyond the purview of this committee.
2. The borrower has the right to independent counsel to
protect his interest in the transaction. The committee
is of the opinion that the Disciplinary Rules do not
require the bank's attorney to advise the borrower of
his right to obtain independent counsel.
3. Disciplinary Rule 7-103(A)(2) states that the only
advice which can be given to an unrepresented opposing
party is the advice to seek counsel. The committee
opines, then, that where the attorney represents only
the lender, that attorney is not required to advise the
borrower that the title insurance obtained is for the
lender only and that the borrower could obtain
additional title insurance in borrower's name to
protect his equity.
4. In response to your inquiry regarding disclosure of
multiple representation when the attorney representing
the lender also represents the borrower, the committee
refers the inquirer to LEO #1153, which requires such
disclosure.
5. With regard to your inquiry dealing with any obligation
to disclose an additional conflict of interest to the
borrower when the attorney who represents both the
lender and the borrower serves in other capacities with
the lending institution, e.g., serving on its
board of directors, loan or other committee, the
committee has previously opined that it is not per seimproper for an attorney to serve as counsel for a bank
as well as being a member of its board of directors.
Thus, under the facts you present, the committee opines
that if the attorney represents the lender and serves
in another capacity for the lender, such as on its
board of directors, loan committee, or other committee,
full and adequate disclosure must be made, and consent
received from, the borrower before the attorney may
represent both borrower and lender. See DR 5-l05(B).
6. As to your inquiry wherein the lending attorney
represents the lender and the borrower but obtains
title insurance only for the lender, the committee is
of the opinion that the attorney must advise the
borrower as to the nature, benefits and availability of
title insurance. See LEO #747.
Committee Opinion
November 1, 1991
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