Can a North Carolina lawyer who co-owns a mortgage brokerage certify title or act as settlement agent on a loan the brokerage placed?

Plain-English summary

The opinion addressed a law firm in which two shareholders, Attorneys A and B, also owned Corporation X, a mortgage brokerage. The question was whether a lawyer connected to that firm could certify title or act as settlement agent on a closing for a loan Corporation X had brokered. The opinion concluded that Attorneys A and B could not, because their personal interest in seeing Corporation X collect its fee or commission for placing the loan could conflict with the borrower-client's interest in closing only when doing so served the borrower. The opinion relied on RPC 49 and RPC 188.

The opinion then applied imputation. Because Attorney C was a member of the same firm, the conflict of Attorneys A and B was imputed to him under Rule 5.11(a), so Attorney C was likewise disqualified from certifying title or acting as settlement agent for the closing.

The opinion went further on whether disclosure and consent could cure the problem. It concluded that Attorneys A and B could not act even as "mere settlement agents" with full disclosure and a written waiver from the borrower, reasoning that the conflict between the lawyers' personal interests and the borrower's interests could materially impair the lawyers' judgment, and that the risk to the borrower was so great that no lawyer should proceed regardless of the client's willingness to consent. It cited RPC 49, Rule 5.1(b), and Rule 5.11(a).

Currency note

This opinion was issued in 1997, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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 lawyer who owns part of a mortgage broker close the loan it placed?

A: No. The opinion concluded that a lawyer with a financial interest in the brokerage cannot certify title or act as settlement agent on a loan it brokered, because the interest in the brokerage's fee conflicts with the borrower-client.

Q: Does the conflict reach other lawyers in the firm?

A: Yes. The opinion concluded that under Rule 5.11(a) the conflict of the owner-lawyers is imputed to a firm member who does not own the brokerage, disqualifying that lawyer as well.

Q: Can the borrower's written consent cure the conflict?

A: No. The opinion concluded that the risk to the borrower is so great that no lawyer should proceed even with full disclosure and a waiver, because the lawyers' personal interest could materially impair their judgment.

Background and rules framework

The opinion applied North Carolina's then-current conflict rules: Rule 5.1 (conflict of interest, corresponding to Model Rule 1.7), including Rule 5.1(b) on conflicts that may materially impair the lawyer's judgment, and Rule 5.11(a) on imputed disqualification (corresponding to Model Rule 1.10). It relied on RPC 49 and RPC 188 for the application of these principles to a lawyer's financial interest in a transaction the lawyer handles for a client.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (conflict of interest; lawyer's personal interest)
• MR 1.10 (imputation of conflicts within a firm)
• North Carolina Rule 5.1 and Rule 5.11(a)

Other opinions cited:

• RPC 49: lawyer's financial interest conflicting with a client in a transaction
• RPC 188: settlement-agent and title duties where the lawyer has an interest

See also

• NC Ethics Op. 2006-3: representing the buyer and bank in a foreclosure resale
• NC Ethics Op. 99 FEO 13: paralegal conducting a residential closing

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-248/

Original opinion text

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

Inquiry #1:

Attorneys A and B are shareholders in Corporation X, a mortgage brokerage. May Attorney C, a member of Attorney A and Attorney B's law firm but not a shareholder in Corporation X, certify title and/or act as settlement agent for a closing in which the mortgage was brokered by Corporation X?

Opinion#1:

No. Attorney A and Attorney B may not certify title or act as settlement agent because Attorney A and Attorney B's personal interest in seeing that Corporation X receives its fee or commission for placing the loan could conflict with the client-borrower's desire to close only when it is in his or her best interest to do so. See RPC 49 and RPC 188. The conflict of interest of Attorney A and Attorney B is imputed to Attorney C, and he is also disqualified from certifying the title and/or acting as a settlement agent for the closing. See Rule 5.11(a).

Inquiry #2:

May Attorney A and Attorney B act as "mere settlement agents" of a loan brokered by Corporation X if another lawyer, who is not a shareholder in Corporation X, certifies title and there is full disclosure as well as a waiver of any conflict of interests by the borrower?

Opinion #2:

No. The conflict between Attorney A and Attorney B's personal interests and the interests of the borrower may materially impair the judgment of Attorneys A and B. The risk to the client-borrower is so great that no lawyer should proceed, regardless of whether the client desires to consent. See RPC 49, Rule 5.1(b), and Rule 5.11(a).