At a loan closing, if the lawyer represents only the lender and the buyers are unrepresented, must the lawyer advise the buyers about title insurance or title defects?

Plain-English summary

Buyers H & W contracted to purchase a home and applied for financing. The bank's mortgage consultant invited them to choose among several title companies and law firms to handle the closing, and they chose AA Title Company, owned by Attorney A. The closing took place at the title company's offices with A attending; in advance, A gave H & W written notice that he represented the lender and that they could obtain separate counsel, which they did not. At closing, A asked H & W to sign a Notice of Availability of Owner's Title Insurance Policy form. The Commission was asked four questions about A's duties to the unrepresented buyers regarding the owner's policy and the title exceptions in Schedule B.

The Commission stressed that A had made his role clear in writing and had offered the owner's-policy notice. On the first question, if H & W ask whether they should buy an owner's policy, A should be careful not to muddle what he made clear; A may politely decline to advise, and if he does advise, he should disclose his non-representation of them and his agency relationship with the title insurer. On the second and third questions, if H & W declined the owner's policy, A was not obligated to provide them a copy of Schedule B of the loan policy before closing, nor to call to their attention a non-standard Schedule B exception that a lawyer for the buyers ought to examine; the Bar Rules set a minimum standard and impose no duty on A to advise the buyers, though if A gratuitously offers advice he should avoid creating confusion about his role. On the fourth question, where H & W chose to buy an owner's policy and a Schedule B exception impaired marketability under the Maine Bar Association's Title Standards but would not prevent secondary-market sale, A was under no obligation to warn them of the divergent standards, though he was free to do so.

As a general comment, the Commission cautioned that even after correct disclosures, H & W might perceive that A's participation implied some responsibility to halt the closing or refer them to counsel. Because borrowers are commonly given copies of the loan policy or its Schedule B, the Commission pointed to the policies behind Bar Rule 3.6(i) (Avoiding Misreliance), which requires a lawyer who knows or should know that advice or an opinion may be communicated to a non-client to take reasonable steps to prevent that person from believing the lawyer represents them. Although the rule speaks of advice or opinions, the Commission reasoned that similar concerns arise where the communicated item is a title insurance policy or schedule, which derives from the lawyer's opinion; so A should not rely only on the initial disclosure of the lender as client but should take other reasonable steps to avoid misreliance, such as pointing out that although H & W ultimately bear the cost of A's fees, those fees were billed to A's client, the lender. A footnote noted the opinion addressed only Bar Rule obligations, and that other duties to H & W might arise outside the Bar Rules.

Currency note

This opinion was issued in 1998, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Must a lawyer who represents only the lender advise unrepresented buyers about buying an owner's title policy?

A: The opinion concluded no. A lawyer who clearly disclosed that he represents the lender may decline to advise; if he does advise, he should disclose his non-representation of the buyers and his agency relationship with the title insurer.

Q: Must lender's counsel point out a problematic title exception to the unrepresented buyers?

A: The opinion concluded no. Having disclosed that he does not represent the buyers and that they may seek separate counsel, the lawyer has no Bar Rule obligation to call a non-standard Schedule B exception to their attention, though he is free to do so.

Q: Does clear disclosure end the lawyer's obligations to the unrepresented buyers?

A: Not entirely. The opinion invoked Bar Rule 3.6(i)'s avoiding-misreliance policy: the lawyer should take reasonable steps to prevent the buyers from believing he represents them, such as noting his fees were billed to the lender client.

Background and rules framework

The opinion interprets Maine Bar Rule 3.6(i) (Avoiding Misreliance), which requires a lawyer who knows or should know that the lawyer's advice or opinion may be communicated to a non-client to take reasonable steps to prevent that person from believing the lawyer represents their interests. This corresponds to ABA Model Rule 4.3 (dealing with an unrepresented person). The setting also implicates the lawyer's dual role as lender's counsel and owner of the title company issuing the policy.

Citations and references

Rules of Professional Conduct:

• Model Rule 4.3 (dealing with unrepresented persons)
• Maine Bar Rule 3.6(i) (Avoiding Misreliance)

Other authorities:

• Maine Bar Association, Title Standards (marketability of title).

See also

• Maine Ethics Op. 182: Real Estate Transactions Involving Title Insurance Companies
• Maine Ethics Op. 179: Lawyer Providing Title Insurance Law-Related Services
• NY State Bar Op. 477: Advising an Adverse Party to Get Counsel

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=89547

Original opinion text

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

Issued by the Professional Ethics Commission

Date Issued: December 2, 1998

FACTS

H & W contract to purchase a home. The purchase and sales agreement requires Seller to convey marketable title to H & W. H & W apply for financing with Bank. Bank?s mortgage consultant invites H & W to choose among several title companies and law firms to effectuate the loan closing. H & W choose AA Title Company, owned by Attorney A.

The closing takes place at AA Title Companies offices and A attends the closing. In advance of closing, A provides H & W with a written notice that he is representing the lender and that if they wish to do so they may obtain separate counsel. H & W do not retain separate counsel. At the closing, A asks H & W to sign a Notice of Availability of Owner?s Title Insurance Policy form, indicating whether they wish to purchase an Owner?s policy, in addition to the Loan policy that is required by the lender.

QUESTIONS POSED

Question 1: If H & W ask A whether they should purchase an Owner?s policy, should A respond?

Question 2: If H & W affirmatively decline to purchase an Owner?s policy, is A obligated, prior to completing the closing, to give H & W a copy of the Schedule B (exceptions) to the Loan Policy ?

Question 3: Schedule B to the Loan Policy contains a non-standard exception, which should be examined and discussed by H & W with their lawyer. Is A obligated to call this to the attention of H & W ?

Question 4: H & W indicate that they wish to purchase an Owner?s policy. On Schedule B of both the Loan and Owner?s Policies there is an exception that, according to the Maine Bar Association?s Title Standards, impairs marketability of title to the real estate but, according to the standards for the secondary mortgage market, will not prevent the mortgage from being sold on the secondary market. Is A obligated to call this circumstance to the attention of H & W?

DISCUSSION

In the hypothetical posed here, A has informed H & W in advance of closing that his role is to represent the Lender; he has done so in writing. A has proffered to H & W the Notice of Availability of Owner?s Title Insurance Form. A has made his role clear to H & W.

Question 1

When H & W ask A whether they should purchase an Owner?s policy, A should take care in any response to avoid muddling what he has striven to make clear. If A wishes, A may politely decline to offer any advice. If A offers H & W any advice on this subject, he should disclose the fact of his non-representation and disclose his agency relationship with the title insurance carrier.

Question 2

If H & W have affirmatively declined the purchase of an Owner?s policy by signing the declination on the Notice of Availability of Owner?s Title Insurance Form, A, who has taken pains to make clear that he does not represent H & W, is not obligated to provide H & W with a copy of the Schedule B of the Loan policy, prior to completing the closing.

Question 3

In the event that Schedule B of the Loan policy contains a non-standard exception that ought to be examined by a lawyer representing H & W, A is not under any obligation to call this to the attention of H & W. A has made it clear in advance of closing that he is not representing H & W and that they should seek separate counsel if they need to. To impose upon A an obligation to give advice to H & W finds no basis in the Bar Rules. The Bar Rules establish a minimum standard of conduct for attorneys. An attorney may wish to make certain that all parties at a closing understand the consequences of their legal acts, but when gratuitously offering any advice, A should be cautious not to create confusion with respect to his role and professional obligations.

Question 4

Similarly, in an situation where H & W have chosen to go unrepresented, A is under no obligation to warn them of the divergent standards between the standards of marketability of title and the secondary market standards. A is free, however, to do so.

As a general comment, although A has made all of the correct disclosures to H & W, the risk remains that it may nonetheless appear to H&W that A?s participation in the transaction implies some degree of responsibility on A?s part to call a halt to the closing and, if necessary, to refer H & W to other counsel for appropriate advice. Because it is common to provide borrowers with copies of the loan policy or of Schedule B to the loan policy, an attorney must bear in mind the underlying policies of Bar Rule 3.6(i), which provides:

(i) Avoiding Misreliance. If a lawyer knows or should know that the lawyer?s advice or opinion may be communicated to a person other than the lawyer?s client, the lawyer shall take reasonable steps to prevent that person from believing that the lawyer represents that person?s interests as well as the interests of the client.

While this provision refers to situations in which the lawyer?s advice or opinion is communicated to a non-client, similar concerns would necessarily obtain where the matter communicated is in the form of a title insurance policy or its schedule, which is a derivative of the lawyer?s opinion. Under such circumstances a lawyer should not merely rely upon the initial disclosure of the identity of the lender as client, but should take reasonable other steps to avoid misreliance. Such other steps may include pointing out that while H and W ultimately bear the cost of A?s fees, these fees have been billed to A?s client, the Lender[1].

Footnote

[1] This opinion relates only to obligations imposed by the Bar Rules. The Commission recognizes that there may be other obligations or responsibilities to H and W arising outside the Bar Rules, which may need to be borne in mind by an attorney in A?s position.