Can a North Carolina closing lawyer who serves as escrow agent agree in advance to represent the buyer if a dispute over the escrow arises?

Plain-English summary

Building on 98 Formal Ethics Opinion 11, which allowed a lawyer representing the buyer in a residential closing to serve as escrow agent for repair funds and, if a dispute arose, to resign as escrow agent and represent the buyer, the committee considered escrow agreements that build that arrangement in from the start. In the first scenario, the buyer and seller drafted an escrow agreement providing that, if a dispute over disbursement arose, the funds would go to another person serving as escrow agent and the lawyer would represent the buyer in the dispute. The committee concluded this did not violate the rules, provided the funds are given to another individual to serve as escrow agent. The escrow agent's responsibilities arise primarily from the fiduciary relationship to both the obligor and obligee, not from a client-lawyer relationship; the agent must be impartial to both, and the lawyer may not advocate for one party until he resigns as escrow agent. The agreement satisfied that condition.

In the second scenario, the closing lawyer represented the buyer, seller, and lender after satisfying the conditions for multiple representation in RPC 210, and the buyer and seller again agreed to appoint the lawyer escrow agent with the same dispute provision. The question was whether a lawyer may participate in an arrangement in which a client agrees in advance to waive any objection to a possible future conflict of interest. The committee answered yes, provided the conditions on waiver of a future conflict set forth in RPC 168 are satisfied.

Currency note

This opinion was issued in 1999, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the conflict and safekeeping rules under the numbering then in effect, relying on prior opinions RPC 168, RPC 210, and 98 Formal Ethics Opinion 11. 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 Treat this page as historical context, not current guidance.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 requirement mentioned here.

Common questions

Q: Can a North Carolina lawyer who is escrow agent agree up front to represent the buyer if a dispute arises?

A: Yes, the opinion held, provided the escrow funds are turned over to another individual who will serve as escrow agent; the lawyer may not advocate for one party while still holding the escrow.

Q: Why must the lawyer hand off the escrow before representing the buyer?

A: The opinion held that an escrow agent's duties arise from a fiduciary relationship to both the obligor and obligee and require impartiality, so the lawyer must resign and pass the funds to a successor before advocating for one side.

Q: Can a client waive a future conflict of interest in advance?

A: Yes. Where the lawyer represented multiple parties in the closing, the opinion held a client may agree in advance to waive objection to a possible future conflict, provided the conditions for waiving future conflicts in RPC 168 are satisfied.

Background and rules framework

The opinion applied North Carolina Rule 1.7 (conflicts of interest, including advance waiver of future conflicts) and the safekeeping-of-property principles underlying a lawyer's role as escrow agent (the analogue to Model Rule 1.15), the analogues to Model Rules 1.7 and 1.15. It relied on 98 Formal Ethics Opinion 11 (lawyer as escrow agent), RPC 210 (multiple representation in a closing), and RPC 168 (conditions for waiving a future conflict of interest).

Citations and references

Rules of Professional Conduct:

• MR 1.7 (conflicts of interest) / NC Rule 1.7
• MR 1.15 (safekeeping property) / NC Rule 1.15 (lawyer as escrow agent)

Other opinions cited:

• NC 98 Formal Ethics Opinion 11: a closing lawyer may serve as escrow agent and, on a dispute, resign and represent the buyer
• NC RPC 210: conditions for representing multiple parties in a closing
• NC RPC 168: conditions for a client's advance waiver of a future conflict of interest

See also

• ABA Formal Op. 05-436: Informed Consent to Future Conflicts
• ABA Formal Op. 02-426: Lawyer Serving as Fiduciary for an Estate or Trust
• NC State Bar Op. 2000 FEO 8: Lawyer as Notary Public

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/99-formal-ethics-opinion-8/

Original opinion text

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

Inquiry #1:

The fiduciary relationship that arises when a lawyer serves as an escrow agent is analyzed in 98 Formal Ethics Opinion 11. The opinion rules that a lawyer who represents the buyer in a residential real estate closing may serve as the escrow agent for funds for certain repairs to the house. If a dispute subsequently arises relative to the completion of the repairs and the right to receive the escrow, the lawyer may resign as escrow agent and represent the buyer in the dispute.

Assume that at the time the escrow is established, the buyer and the seller draft an escrow agreement. The agreement provides that in the event of a dispute over the disbursement of the escrow, the funds will be disbursed to another person who will act as escrow agent and the lawyer will represent the buyer in the escrow dispute. Does this arrangement violate the Revised Rules of Professional Conduct?

Opinion #1:

No, provided the funds are given to another individual who will serve as escrow agent. As noted in 98 Formal Ethics Opinion 11, the responsibilities of a lawyer acting as an escrow agent arise primarily from the lawyer's fiduciary relationship to both the obligor and obligee and not from a client-lawyer relationship. An escrow agent must be impartial to both the obligor and the obligee. If a dispute arises, the lawyer may not advocate for one of the parties until he resigns as escrow agent. The agreement contemplated in this inquiry satisfies this condition.

Inquiry #2:

The closing lawyer represents the buyer, the seller, and the lender in the closing after satisfying the conditions for multiple representation set forth in RPC 210. As in the preceding inquiry, the buyer and the seller enter into an agreement that appoints the closing lawyer escrow agent. The escrow agreement also provides that, in the event of a dispute, the funds will be given to another escrow agent and the closing lawyer will represent the buyer in the escrow dispute. May a lawyer participate in an arrangement in which one of the lawyer's clients agrees in advance to waive any objection to a possible future conflict of interest?

Opinion #2:

Yes, provided the conditions on waiver of a future conflict of interest set forth in RPC 168 are satisfied.