May a lawyer who serves as the trustee in a foreclosure act as advocate for the lender or the borrower at any stage of the proceeding?

Plain-English summary

The opinion clarified CPR 94 and CPR 137 on a trustee's duties in a foreclosure under G.S. Section 45-21.16. CPR 94 had said the trustee/lawyer could not represent the lender at the appeal hearing before the Judge, leaving the impression he could do so before the Clerk; CPR 137 had said the trustee/lawyer could not represent the lender before the Clerk where the borrower challenged the default, prompting speculation that the reason was a conflict from prior representation of the borrower.

The opinion concluded the proper rule is that the trustee/attorney cannot ethically represent either the lender or the borrower in an advocacy role at any stage of the foreclosure. The trustee in his fiduciary capacity must preserve the interests of both, and in that sense represents both; acting in an adversary capacity for either would violate that fiduciary duty and offend the Code's conflict-of-interest provision. The foreclosure statute does not alter this; it merely provides the machinery by which the trustee starts the process. In the absence of controversy, the trustee may present, on the lender's behalf, the evidence needed to support the Clerk's findings for a foreclosure order; if the proceeding becomes adversary, the trustee must assume a neutral posture consistent with his fiduciary duty to both. While the proceeding is not adversary, the trustee may perform routine legal services for the lender, such as determining intervening liens and other matters affecting the foreclosure; even in an adversary proceeding, he may perform legal services for himself affecting his fiduciary duties. Whether the trustee may represent either party in post-foreclosure actions, such as ejectment, depends on whether a conflict arises on the particular facts.

Currency note

This opinion was issued in 1978 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 principle it applied corresponds 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 Treat this page as historical context, not current guidance.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 a foreclosure trustee advocate for the lender before the Clerk?

A: Not in an adversary proceeding. The opinion concluded the trustee/attorney cannot act as advocate for either party at any stage; while uncontested, he may present the lender's evidence for the Clerk's findings, but must go neutral once it becomes adversary.

Q: Why must the trustee stay neutral?

A: Because he represents both parties' interests. The opinion concluded the trustee owes a fiduciary duty to both lender and borrower, so acting as an adversary advocate for either would violate that duty and the conflict-of-interest rule.

Q: Can the trustee still do any work for the lender?

A: Yes, routine non-adversary services. The opinion concluded that while the proceeding is not adversary, the trustee may perform routine services for the lender like checking intervening liens, and may always perform services for himself affecting his fiduciary duties.

Background and rules framework

The opinion reconciled CPR 94 and CPR 137 and applied the conflict-of-interest principle of the former Code (corresponding to today's Model Rule 1.7) to the trustee's fiduciary role under G.S. Section 45-21.16. The analysis turned on the trustee's duty of neutrality to both parties, which bars advocacy for either at any stage of the foreclosure.

Citations and references

Rules of Professional Conduct:

• North Carolina Code of Professional Responsibility (conflict of interest; trustee's fiduciary duty)
• MR 1.7 (conflicts of interest)

Statutes:

• G.S. Section 45-21.16 (power-of-sale foreclosure procedure, as discussed in the opinion)

Other opinions cited:

• North Carolina CPR 94 and CPR 137 (clarified by this opinion)

See also

• NC Ethics Op. CPR 94: lawyer-trustee representing the bank
• NC Ethics Op. RPC 3: lawyer-trustee in a foreclosure

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/cpr-166/

Original opinion text

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

Several inquiries have been received that indicate a need to clarify CPR 94 and CPR 137 relating to the duties of the trustee in a foreclosure proceeding under G. S. Sec. 4521.16. CPR 94 ruled that the trustee as lawyer cannot ethically represent the lender at a hearing before the Judge on appeal from the Clerk, and this left the impression that he could ethically do so at the level of the Clerk. CPR 137 ruled that the trustee as lawyer cannot represent the lender at the hearing before the Clerk where the borrower challenges the default and the validity of the proceeding, and the apparent conflict with CPR 94 produced some speculation that the reason under these particular facts was a conflict of interest growing out of prior representation of the borrower.

Opinion: The proper rule is that the trustee/attorney cannot ethically represent either the lender or the borrower in a role of advocacy at any state of the foreclosure proceeding. The trustee in his fiduciary capacity is charged with the duty of preserving the interests of both, and in that sense he represents both. If, during the existence of the fiduciary relationship, he should act in an adversary capacity for either, he would violate his fiduciary duty to the owner, and this would offend the Code provision against conflict of interest.

The foreclosure statute, G. S. Sec. 45-21.16, does not alter this rule. It merely provides machinery by which the trustee puts the foreclosure process in motion. Upon receipt of a request from the lender/creditor the trustee serves upon each party a notice of hearing before the Clerk. In the absence of controversy the trustee may present, on behalf of the lender, the evidence necessary to support the Clerk's findings essential to a foreclosure order. If the proceeding becomes adversary, the trustee must assume a neutral posture consistent with his fiduciary duty to both parties. At no stage of the proceeding can the trustee ethically assume the role of an advocate for one against the other.

As long as the proceeding is not adversary, the trustee may ethically perform for the lender such routine legal services as determining the existence of intervening liens and other matters affecting the foreclosure. Even if the proceeding is adversary, he may ethically perform for himself such legal services as may affect the performance of his fiduciary duties.

Whether the trustee may ethically represent either party in post-foreclosure actions, such as ejectment, will depend upon whether or not a conflict of interest arises under the particular facts.