When a lawyer closes a loan for the lender, must he tell an unrepresented borrower about title defects even though the lender has title insurance?

Plain-English summary

The inquiring firm regularly closed FHA-insured mortgage loans for a statewide mortgage company, examining titles and approving title insurance. Sometimes title defects or clouds appeared, often from errors in prior foreclosure proceedings, and the title insurer accepted an indemnity from the lawyer who had made the error and issued a mortgagee policy to the lender without exception. The lawyer was paid by the lender, not the borrower, though the cost sometimes shifted to the purchaser-borrower, and it was made clear that he represented the lender and not the borrower. The question was whether the closing attorney should disclose the title irregularity to the purchaser-borrower, given the lawyer's concern that disclosure might cause the borrower to back out, displeasing the lender-client.

A majority of the committee believed the lawyer should disclose the title irregularity to the purchaser-borrower, because concealing it might mislead the borrower in violation of Canon 9. As a practical matter, an unrepresented borrower was likely to rely on the closing attorney to disclose adverse title matters, especially where the borrower directly or indirectly paid the attorney's fees and dealt directly with him. The committee noted its position could differ for a lender's attorney who advised the lender but did not communicate or deal with the borrower. A minority believed no disclosure was required where the borrower clearly understood the lawyer represented only the lender and that the title policy insured only the lender, perhaps more so where the irregularity was minor and curable by the passage of time.

Currency note

This opinion was issued in 1965, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied the former Canon 9 on avoiding the misleading of an unrepresented party. A lawyer's duties when dealing with an unrepresented person are now governed by Rule 4-4.3 of the Rules Regulating The Florida Bar (Model Rule 4.3). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific requirement mentioned here.

Common questions

Q: Must a lender's closing attorney tell an unrepresented borrower about a title defect?

A: A majority said yes, where the borrower deals directly with the attorney, because concealing the defect could mislead the borrower in violation of Canon 9, even though the lender holds title insurance.

Q: Why did the borrower's lack of representation matter?

A: The committee reasoned that an unrepresented borrower is likely to rely on the closing attorney to disclose adverse title matters, especially where the borrower is paying the fees and dealing directly with the lawyer.

Q: Would the answer change for a lawyer who never deals with the borrower?

A: The committee said its position could be different for a lender's attorney who advises the lender on title matters but does not communicate or deal with the borrower.

Background and rules framework

The opinion applied the former Canon 9, which directed a lawyer to avoid everything that might mislead a party not represented by counsel. That duty is now addressed by Rule 4-4.3 of the Rules Regulating The Florida Bar (Model Rule 4.3). The committee's analysis turned on the borrower's direct dealings with and reliance on the closing attorney, despite the attorney's loyalty running to the lender.

Citations and references

Rules of Professional Conduct:

• Canon 9 [Canons of Professional Ethics; see current Rule 4-4.3]

See also

• FL Bar Ethics Op. 66-8: Drafting a Settlement for an Unrepresented Spouse
• FL Bar Ethics Op. 68-46: Disclosure to an Unrepresented Deed Signer

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-65-58/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-65-58.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 65-58
October 18, 1965
Advisory ethics opinions are not binding.
A lawyer who closes mortgage loans in behalf of a mortgage lender should disclose to a purchaser-borrower title defects or clouds known to the lawyer (and to the title insurer), even though the lender is protected by title insurance, when the purchaser-borrower is not represented by an attorney and has direct dealings with the closing attorney.
Canon: 9
Chairman Kittleson stated the opinion of the committee:
A member of The Florida Bar has requested the Committee's advice on the situation discussed below. His firm regularly closes FHA-insured mortgage loans in behalf of a statewide mortgage company, and in connection therewith examines land titles and approves issuance of title insurance binders and policies. In some instances, the title to the property is held by the Federal Housing Commissioner as a result of foreclosure or conveyance in lieu of foreclosure of an earlier FHA-insured mortgage. From time to time in the title examinations, title defects or clouds appear, often as a result of errors and inadequacies in the foreclosure proceedings through which the Federal Housing Commissioner derived title. In each instance of this kind, the title insurer has accepted an agreement from the attorney who made the error, indemnifying the title insurer against loss by reason of the error, and the title insurer has issued a mortgagee title insurance policy to the lender without pertinent exception. The lawyer receives his fees from the lender, and not (at least not directly) from the purchaser-borrower. Usually the seller bears this cost, but sometimes arrangements among the seller, purchaser, and lender may shift all or some of the cost to the purchaser-borrower. It is made clear to the purchaser-borrower that the lawyer represents not him but the mortgage lender. The question is: should the lawyer, as closing attorney acting in behalf of the mortgage lender, disclose the title irregularity to the purchaser-borrower? He is concerned that disclosure of title defects to a purchaser-borrower could cause him to withdraw from the proposed transaction, to the displeasure of the lawyer's client, the lender.
A majority of the Committee believes that the lawyer should disclose the title irregularity to the purchaser-borrower, because to conceal the problem may mislead him in violation of Canon 9. As a practical matter, where the purchaser-borrower is not represented by an attorney, he is likely to rely upon the closing attorney to disclose any adverse title matters, especially if he is directly or indirectly paying the attorney's fees, and especially if he has direct communication and dealings with the attorney. The Committee's position could be different with respect to a lender's attorney who advises the lender on title matters but does not communicate or deal with the borrower.
A minority of the Committee believes that the lawyer would not be obligated to make the disclosure, where the purchaser-borrower clearly understands that he does not represent him but only the lender and clearly understands that the title insurance policy does not insure him but only the lender. Perhaps this view is even more justified where the title irregularity is not a major one and will be cured by the passage of time.