Can a lawyer who represents a lending institution take referrals of its loan customers and also represent the seller, buyer, or borrower in the same deal?
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This page answers the general question as of 1964. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
Opinion 29 (adopted January 18, 1964) addressed a lawyer for a financial institution that made residential loans. The institution directed loan applicants to its lawyer, who prepared the sale contract, and later, for closing, the deed, the note and deed of trust, any second-mortgage papers, examined the abstract, and did title remedial work, charging the seller and buyer for various documents and splitting the contract and closing fee between them.
The Committee concluded the lawyer may be in violation of Canon 27 (solicitation), Canon 35 (lay intermediary), and Canon 6 (conflicting interests). Canon 27 was violated if the institution systematically referred its customers to him for their personal legal services with his knowledge and consent, because the documents other than the lender's own note and deed of trust should be drawn by the parties' own attorneys, and systematically accepting that employment amounted to solicitation through "touters." The opinion stated the lawyer should ask the institution not to refer customers unless they had no lawyer and asked the lender to recommend counsel, and even then the customers should be told of other available local counsel. Permitting systematic referral also violated Canon 35, because the lay client intervened between the lawyer and the parties whose rights his work affected, making his relationship to them impersonal. Finally, the lawyer violated Canon 6 unless he obtained the express consent of all parties he represented after full disclosure, because the interests of lender, buyer, and seller could conflict, and he was "representing" the parties when he prepared documents affecting their rights for a fee. The conclusions applied to residential and other real-estate loans, and the Committee relied in part on its prior Opinions 12, 17, and 24.
Currency note
This opinion was issued in 1964 under the former Canons of Professional Ethics, before the Colorado Rules of Professional Conduct took effect on January 1, 1993, and before Colorado's 2008 revisions to those rules. The conflict-of-interest analysis corresponds to current Rule 1.7 (conflicts of interest), and the solicitation and lay-intermediary concerns map to the current advertising and solicitation rules, including Rule 7.3. The Colorado rules in this area have since changed. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.
Common questions
Q: Can a lender's lawyer prepare the buyer's and seller's documents in a loan closing?
A: Not without consent, under this opinion. The Committee concluded that preparing documents affecting the buyer's and seller's rights for a fee makes the lawyer their representative, which violates Canon 6 unless each party expressly consents after full disclosure.
Q: Can the lender route its loan customers to its own lawyer for their personal legal work?
A: No, not systematically. The opinion concluded that systematic referral of customers to the lender's lawyer, with his knowledge and consent, amounted to solicitation through touters in violation of Canon 27 and let the lay client improperly intervene under Canon 35.
Q: Is there any proper way for the lender to suggest its lawyer?
A: The opinion concluded the lawyer should ask the lender not to refer customers unless they have no attorney and ask the lender to recommend counsel, and even then customers should be told of other available local counsel.
Background and rules framework
The opinion applied the Canons of Professional Ethics: Canon 27 (solicitation), Canon 35 (lay intermediaries), and Canon 6 (conflicting interests), relying on the firm's prior Opinions 12, 17, and 24. The corresponding modern principles appear in Model Rule 1.7 (conflicts of interest) and Model Rule 7.3 (solicitation of clients).
Citations and references
Rules of Professional Conduct:
- Colo. RPC 1.7 / Model Rule 1.7 (conflicts of interest; modern analog to the Canon 6 analysis)
- Colo. RPC 7.3 / Model Rule 7.3 (solicitation of clients; modern analog to the Canon 27 analysis)
Other opinions cited:
- CBA Formal Opinion 12 (title opinion for a lending institution)
- CBA Formal Opinion 17 (preparing documents for a non-broker sale firm)
- CBA Formal Opinion 24 (law offices in a financial-institution client's premises)
See also
- CBA Formal Op. 12: Title Opinion Sold to a Lender's Borrower
- CBA Formal Op. 24: Law Offices in a Client Bank
- CBA Formal Op. 23: Insurer-Picked Counsel for a Minor's Guardian
Source
- Landing page: https://www.cobar.org/ethicsopinions
- Original PDF: https://www.cobar.org/Portals/COBAR/Repository/Front%20Desk/FormalEthicsOpinion_29_2011.pdf?ver=2016-10-04-103455-933
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