Can a county's tax attorney, acting as the appointed foreclosure commissioner, buy the property at the tax foreclosure sale she is conducting?

Plain-English summary

A county's tax attorney pursues delinquent taxes by sending a demand letter, then filing a foreclosure action, after which the court appoints him as commissioner to foreclose on the property; the county "bids in" the property for the back taxes and costs. In one instance the attorney agreed to buy a property directly from an owner who offered it after the demand letter, and in another he had his paralegal submit a bid above the county's at the public auction and then transfer the property to him. The opinion addresses whether the attorney, as commissioner, may acquire the property.

On bidding at the sale, the opinion concludes no. As the appointed commissioner, the attorney has a duty to oversee the sale of the foreclosed property in a fair and impartial manner, and advancing a personal interest by bidding on the property violates that duty under Rule 8.4(d) (conduct prejudicial to the administration of justice), citing G.S. § 105-374 and Hinson v. Morgan. On using an agent, the opinion concludes the attorney may not have an employee or agent bid on her behalf, because she must ensure her employee's conduct is compatible with her own professional obligations under Rule 5.3.

On a direct purchase from the taxpayer, the opinion concludes the attorney may not buy the property directly unless she reasonably believes her personal interest in the property will not adversely affect her representation of the county, the transaction is fair, and she obtains the county's informed consent, confirmed in writing (Rules 1.7 and 1.8(b)). The duty to disclose and obtain the county's consent arises as soon as the lawyer decides to act in her own interest by offering to purchase the property. If she obtains the county's consent, she must also follow Rule 4.3 in dealing with the unrepresented taxpayer: she may not state or imply that she is disinterested, must make reasonable efforts to correct any misunderstanding on that point, and must not give the unrepresented taxpayer legal advice other than to secure counsel.

In practice

Under the North Carolina rules as they stood at the time of the opinion, the analysis turns on the lawyer's dual role as the county's advocate and the court's impartial commissioner. The opinion holds that the commissioner role forecloses bidding on the property, directly or through an employee, and that a direct purchase from the taxpayer is permissible only with a reasonable belief of no adverse effect on the county representation, a fair transaction, and the county's informed written consent.

Per the opinion, when the lawyer deals with the unrepresented taxpayer she must comply with Rule 4.3: not implying she is disinterested, correcting misunderstandings, and limiting advice to a recommendation to obtain counsel.

Common questions

Q: Can the county's tax attorney, as foreclosure commissioner, bid on the property at the sale?

A: No. The opinion concludes that bidding on her own account violates her duty as commissioner to conduct the sale fairly and impartially, contrary to Rule 8.4(d).

Q: Can she have a paralegal or agent bid for her instead?

A: No. The opinion concludes she may not have an employee or agent bid on her behalf, because she must ensure the employee's conduct is compatible with her own professional obligations under Rule 5.3.

Q: Can she buy the property directly from the delinquent taxpayer?

A: Only with safeguards. The opinion concludes she may buy directly only if she reasonably believes her personal interest will not adversely affect her representation of the county, the transaction is fair, and the county gives informed written consent (Rules 1.7 and 1.8(b)).

Q: What must she do when dealing with the unrepresented taxpayer?

A: Follow Rule 4.3. The opinion concludes she may not state or imply she is disinterested, must correct any misunderstanding, and may not give the taxpayer legal advice other than to secure counsel.

Background and rules framework

The opinion applies North Carolina Rule 8.4(d) (conduct prejudicial to the administration of justice), Rule 5.3(b) and (c) (responsibility for nonlawyer assistants), Rule 1.7 (conflicts from the lawyer's own interest), Rule 1.8(b) (use of information to the client's disadvantage), and Rule 4.3 (dealing with an unrepresented person). These track Model Rules 8.4, 5.3, 1.7, 1.8, and 4.3. The opinion relies on the commissioner's statutory and fiduciary duty of impartiality under G.S. § 105-374 and Hinson v. Morgan, and on RPC 24 and RPC 82.

Citations and references

Rules of Professional Conduct:

• MR 8.4 / NC Rule 8.4(d) (conduct prejudicial to the administration of justice)
• MR 5.3 / NC Rule 5.3(b), (c) (supervision of nonlawyer assistants)
• MR 1.7 / NC Rule 1.7 (conflict from the lawyer's own interest)
• MR 1.8 / NC Rule 1.8(b) (use of client information to the client's disadvantage)
• MR 4.3 / NC Rule 4.3 (dealing with an unrepresented person)

Statutes:

• N.C. Gen. Stat. § 105-374 (tax foreclosure; commissioner's duties)

Cases:

• Hinson v. Morgan, 225 N.C. 740, 36 S.E.2d 266 (N.C. 1945), a commissioner may not purchase at a sale he conducts

Other opinions cited:

• NC RPC 24; NC RPC 82.

See also

• NC 2006 FEO 3: Representation in the Purchase of Foreclosed Property
• NC 2005 FEO 5: Communications with a Represented Government Entity

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2006-formal-ethics-opinion-5/

Original opinion text

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

Inquiry #1:

Attorney A is the tax attorney for the county. If the county's tax collector is unsuccessful in collecting taxes, the case is referred to Attorney A for legal action. Ordinarily, Attorney A sends a demand letter to the delinquent taxpayer. If the demand letter does not result in payment, Attorney A files a foreclosure action. If service of the lawsuit does not result in the payment of taxes, the presiding judge appoints Attorney A as the commissioner to foreclose upon the real property to satisfy the taxes due. Attorney A then follows all statutory procedures for a foreclosure action. The county always "bids in" the property for the amount of back taxes owed plus the costs that have accrued.

On at least one occasion, a property owner contacted Attorney A after receiving the demand letter and offered to sell her property directly to Attorney A to satisfy her tax liability. Attorney A agreed to purchase the property directly from the property owner. On another occasion, Attorney A instructed his paralegal to attend the public auction and submit a bid in excess of the amount bid by the county if no one else bid on the property. The paralegal submitted the only other bid and later transferred the real property to Attorney A for the amount bid at auction. May Attorney A, who is the appointed commissioner, submit a bid on her own account at a tax foreclosure sale she is conducting?

Opinion #1:

No. As the appointed commissioner, Attorney A has a duty to oversee the sale of the foreclosed property in a fair and impartial manner. Advancing a personal interest by bidding on the foreclosed property violates this duty. G.S. §105-374; Hinson v. Morgan, 225 N.C. 740, 36 S.E. 2d 266 (1945); Rule 8.4(d); see also RPC 24 and RPC 82.

Inquiry #2:

If Attorney A may not submit a bid, may she have an agent or employee bid on her behalf?

Opinion #2:

No. Attorney A must insure that the conduct of her employee is compatible with her own professional obligations. Rule 5.3(b)(c).

Inquiry #3:

May Attorney A agree to purchase property from a delinquent taxpayer who offers to sell her property to Attorney A prior to the initiation of a formal tax foreclosure proceeding?

Opinion #3:

No, Attorney A may not purchase property directly from a delinquent taxpayer unless she has a reasonable belief that her personal interest in the property will not adversely affect the representation of the county, the transaction is fair, and she has obtained the informed consent of the county, confirmed in writing. Rule 1.7 and Rule 1.8(b). The duty to disclose and obtain the consent of the county arises as soon as the lawyer decides to act in her own interest by offering to purchase the property in written or oral communications with the taxpayer.

If Attorney A obtains the consent of the county, she must also follow the disclosure requirements in Rule 4.3 when dealing with unrepresented taxpayers. Specifically, she may not state or imply that she is disinterested and she must make reasonable efforts to correct any misunderstandings in this regard. She must also refrain from giving legal advice to unrepresented taxpayers other than the advice to secure counsel.