Can a North Carolina lawyer put extra excise tax stamps on a deed, or draft a purchase agreement reciting a price higher than the parties actually agreed?

Plain-English summary

The committee addressed two related practices in real estate closings. Excise tax stamps on a recorded deed are based on the sales price reported to the register of deeds (G.S. section 105-228.32), so appraisers, developers, agents, and lenders use the stamps to gauge a property's purchase price. The inquiry described a scenario where a developer sells a lot but gives the buyer a credit at closing, then has the closing lawyer obtain tax stamps based on the higher contract price, allowing the developer to claim inflated sale prices to drive up other lot sales.

On the first question, the opinion concluded that a lawyer may not counsel or help a client put excess tax stamps on a recorded instrument. Because the public regularly relies on the price information derived from tax stamps, doing so involved dishonesty and misrepresentation prohibited by Rule 8.4(c), and the opinion also pointed to Rule 1.2(d), which barred counseling a client to engage in conduct the lawyer knew was fraudulent.

On the second question, whether a lawyer may draft a purchase agreement reciting a price greater than the consideration the parties had orally agreed to exchange at closing, the opinion answered no and referred back to its first answer.

Currency note

This opinion was issued in 2001, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the rule numbering then in effect. 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 Treat this page as historical context, not current guidance.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: Can a closing lawyer put extra excise tax stamps on a deed to reflect a higher price?

A: No. The opinion concluded that because the public relies on tax-stamp values to assess a property's price, affixing excess stamps involved dishonesty and misrepresentation prohibited by Rule 8.4(c).

Q: Why does it matter that the stamp value is inflated?

A: The opinion explained that appraisers, developers, real estate agents, and lenders rely on tax stamps to evaluate purchase price, so an inflated stamp value could deceive those third parties.

Q: Could a lawyer instead draft the purchase agreement to recite the higher price?

A: No. The opinion treated drafting a purchase agreement reciting a price greater than the actual agreed consideration the same way as the tax-stamp question, referring to its first answer.

Background and rules framework

The opinion applied North Carolina Rule 8.4(c) (the analogue to Model Rule 8.4(c)), which made it professional misconduct to engage in conduct involving dishonesty, fraud, deceit, or misrepresentation, and Rule 1.2(d) (the analogue to Model Rule 1.2(d)), which barred a lawyer from counseling or assisting a client in conduct the lawyer knew was fraudulent. The factual premise rested on N.C. Gen. Stat. section 105-228.32, which keys excise tax stamps to the reported sales price.

Citations and references

Rules of Professional Conduct:

• MR 8.4(c) (dishonesty, fraud, deceit, misrepresentation) / NC Rule 8.4(c)
• MR 1.2(d) (counseling or assisting client fraud) / NC Rule 1.2(d)

Statutes:

• N.C. Gen. Stat. section 105-228.32 (excise tax on conveyances)

See also

• NY State Bar Op. 1033: Short Sale Disclosure to Bank
• NY State Bar Op. 1022: Seller's Concessions on Forms
• NY State Bar Op. 882: Seller Concession and Gross-Up

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2001-formal-ethics-opinion-12/

Original opinion text

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

Inquiry #1:

The excise tax stamps affixed to a recorded instrument of conveyance or deed are based upon the sales price for the property reported to the register of deeds. See GS section 105-228.32. Therefore, the purchase price for real property can be calculated from the tax stamps on the deed. Appraisers, developers, real estate agents, and lenders rely upon the tax stamps to evaluate the purchase price of real property. If excess tax stamps are affixed to a deed, the higher value reflected by the tax stamps may deceive third parties. For example, a developer sells a lot to a buyer for a certain purchase price but gives the buyer a credit at closing. The lawyer closing the transaction obtains tax stamps for the deed based upon the higher price recited in the purchase agreement even though the actual consideration paid by the buyer is less. To encourage sales of other lots in the development at inflated prices, the developer claims that he sold the lot for the inflated price reflected in the tax stamps.

May a lawyer who closes a real estate transaction have the register of deeds affix more tax stamps to the deed than are warranted by the actual consideration paid for the property?

Opinion #1:

It is professional misconduct for a lawyer to engage in conduct involving dishonesty, fraud, deceit, or misrepresentation. Rule 8.4(c). Members of the public regularly rely upon the information about the price of real property that can be derived from tax stamps on recorded instruments. Therefore, a lawyer may not counsel or help a client to put excess tax stamps on an instrument when it is recorded with the register of deeds because such conduct involves dishonesty and misrepresentation. See also Rule 1.2(d) (prohibiting a lawyer from counseling a client to engage in conduct that the lawyer knows is fraudulent).

Inquiry #2:

May a lawyer draft for a client a purchase agreement for real property wherein the purchase price recited in the written agreement is greater than the actual consideration the parties have orally agreed will be exchanged at closing?

Opinion #2:

No. See opinion #1.