In a routine residential loan and sale, can one lawyer represent the borrower and the lender (and handle the seller's deed), and what must the lawyer disclose?

Plain-English summary

Responding to years of inquiries about the lawyer's role in the usual residential loan transaction, the opinion set out basic rules and revoked all previous inconsistent ethics opinions. It assumed the basic loan terms had been agreed between borrower and lender, that the lawyer had no duty to bargain for either, that each principal had a right to separate counsel, and that the borrower pays the lawyer's fee.

In the usual residential loan transaction, the opinion concluded a lawyer may represent both the borrower and the lender. If the lawyer does not intend to represent both, he must give timely notice to the one he does not intend to represent so that person can secure separate, timely representation; if he gives no such notice, he is deemed to represent both. A lawyer who represents only the borrower may still provide the title and lien-priority assurances the lender requires. The lawyer must clearly state to his client or clients whom he represents and the general scope of the representation. Where each principal has separate counsel, the lawyers should cooperate to close the loan promptly. If the lawyer represents both, he may be barred (absent the other's consent) from representing either if a controversy arises between them before, during, or even after the closing. The opinion added that the lawyer may also prepare the seller's deed, collect the purchase price, and draft other documents, charging the seller; may provide a title opinion for a mortgagee policy; should alert an inexperienced buyer-borrower to the availability of an owner's title policy; and, if he has a continuing relationship with any party, should be alert to any obstacle to loyal representation of the others and decline if there is doubt.

Currency note

This opinion was issued in 1977 under North Carolina's former Code of Professional Responsibility (the DR/EC framework), before the State Bar replaced the Code with the Rules of Professional Conduct (adopted 1985) and before the 2003 revisions to those Rules. The conflict-of-interest and disclosure principles it applied correspond to today's Model Rule 1.7. 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 Treat this page as historical context, not current guidance.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 one lawyer represent both borrower and lender in a home loan?

A: Yes, in the usual residential loan transaction. The opinion concluded a lawyer may represent both, subject to notice and disclosure requirements.

Q: What happens if the lawyer does not notify the party he is not representing?

A: He is deemed to represent both. The opinion concluded that absent timely notice to the one he does not intend to represent, the lawyer is deemed to represent both the borrower and the lender.

Q: What if a dispute arises between borrower and lender?

A: The lawyer may have to step aside. The opinion concluded that if a controversy arises between them before, during, or after closing, the lawyer who represented both may be barred from representing either without the other's consent.

Background and rules framework

The opinion applied the conflict-of-interest and disclosure principles of the former Code of Professional Responsibility (corresponding to today's Model Rule 1.7) to the common dual representation of borrower and lender. The analysis turned on clear disclosure of whom the lawyer represents, notice to any unrepresented principal, and withdrawal limits once the principals' interests actually diverge.

Citations and references

Rules of Professional Conduct:

• North Carolina Code of Professional Responsibility (multiple representation; disclosure)
• MR 1.7 (conflicts of interest; informed consent)

See also

• NC Ethics Op. RPC 41: lender-prepared closing documents
• NC Ethics Op. RPC 44: attorney's obligation to follow closing instructions

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/cpr-100/

Original opinion text

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

Over a period of several years, a number of inquiries have been made to the Council centering around the role of the lawyer in the usual residential loan transaction. This opinion is intended to deal with these basic questions and has the effect of revoking all previous ethics opinions inconsistent with it.

For the purposes of this opinion, in the usual residential loan transaction, it is assumed that the basic terms of the loan (amount, security, interest rate, installments, and maturity, but not necessarily all of the provisions contained in a deed of trust or mortgage) have been agreed upon between the borrower and the lender and that the lawyer has no obligation to bargain for either party. It is not material whether the lawyer is engaged by the borrower or by the lender or, if he is engaged by both, who engaged him first. It is recognized, of course, that each principal to the transaction has the right to separate counsel if he so desires. It is assumed that the borrower pays the lawyer's fee.

In the usual residential loan transaction:

(a) A lawyer may ethically represent both the borrower and the lender.

(b) If the lawyer intends not to represent both the borrower and the lender, he shall give timely notice to the one he intends not to represent of this fact, so that the one not represented may secure separate and timely representation.

(c) If he does not give such notice, he shall be deemed to represent both the borrower and the lender.

(d) If he represents only the borrower, he may nevertheless ethically provide title and lien priority assurances required by the lender as a condition of the loan.

(e) He shall clearly state to his client(s), whether the borrower or the lender, or both, whom he represents and the general scope of his representation.

(f) If he does not represent both principals, and the one he does not represent retains another lawyer to represent him, both lawyers should fully cooperate with each other in serving the interests of their respective clients and in closing the loan promptly.

(g) If the lawyer represents both the borrower and the lender, he may be ethically barred from representing either one (without the consent of the other) if a controversy arises between the borrower and the lender before or during the loan closing or, if a controversy arises between the borrower and the lender relating to the loan, even after the closing.

The seller is frequently involved in the usual residential loan transaction, and the lawyer representing the borrower and the lender (or either), whether or not a loan is involved, may be called upon to prepare a deed from the seller. It is assumed that the basic terms of the sale transaction have been agreed upon between the seller and the buyer and that the lawyer has no obligation to bargain for either.

It is not unethical for a lawyer representing the borrower and the lender (or either) in the usual residential loan transaction to prepare a deed from the seller to the buyer, collect the purchase price for the seller, or draft other documents (such as a second deed of trust and note secured thereby) as may be necessary to complete the transaction between the seller and the buyer in accordance with their agreement, and charge the seller therefore.

A lender frequently requires title insurance. It is not unethical for the lawyer representing the borrower, the lender and the seller (or one or more of them) to provide the title insurer with an opinion on title sufficient to issue a mortgagee title insurance policy, the premium for which is normally paid by the borrower. Bearing in mind that a buyer-borrower is usually inexperienced in the purchase of real estate and the securing of loans thereon, any lawyer involved in the transaction, even though not representing£ the borrower, should be alert to inform the borrower of the availability of an owner's title insurance policy which is usually available to the borrower up to the amount of the loan at little or no expense to the borrower, and assist the borrower in obtaining an owner's title insurance policy.

A lawyer having a continuing professional relationship with any party to the usual residential transaction, whether the seller, the lender, or the borrower, should be particularly alert to determine in his own mind whether or not there is any obstacle to his loyal representation of other parties to the transaction, and if he finds that there is, or if there is any doubt in his mind about it, he should promptly decline to represent any other party to the transaction. In any event, the lawyer shall clearly state to his client(s), whether the seller, the lender, the borrower, or one or more of them, whom he represents and the general scope of his representation.