When a lender prepares the closing documents and the lawyer represents only the lender, does the lawyer owe the borrower any duties, and can the lender waive the lawyer's liability?

Plain-English summary

Lender A wanted to retain Attorney B to examine title, render a title opinion, obtain title insurance, record documents, and disburse funds at a real estate closing. Lender A would prepare all necessary documents and agreed to hold Attorney B harmless for errors in them; the borrower would be charged a document-preparation fee by Lender A and notified that Attorney B represented only Lender A. The inquiry asked three questions about unauthorized practice, the lawyer's duty to the borrower, and waiver of the lawyer's liability.

The opinion concluded, first, that Lender A had a primary interest in the closing documents, so under State v. Pledger, 257 N.C. 634, 127 S.E.2d 337 (1962), Lender A could draft them without engaging in the unauthorized practice of law. Second, if Attorney B clearly explained to the borrower that he represented only Lender A and made that disclosure far enough in advance for the borrower to obtain his own counsel, Attorney B would have no duty to notify the borrower of potential title defects (CPR 100), and the opinion suggested any such notice be in writing. Third, Lender A could not waive Attorney B's liability for errors in the closing documents without the borrower's permission; however, if Attorney B did not draft or review the documents and did not represent the borrower in any respect, it did not appear he could be held responsible for errors in them.

Currency note

This opinion was issued in 1989, 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 Treat this page as historical context, not current guidance.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: Does the lender commit unauthorized practice by preparing the closing documents?

A: No. The opinion concluded the lender has a primary interest in the documents and may prepare them under State v. Pledger.

Q: Does a lawyer for the lender only owe the borrower a duty to report title defects?

A: Not if he discloses. The opinion concluded that, with timely disclosure that he represents only the lender, the lawyer owes the borrower no duty to report potential title defects.

Q: Can the lender waive the lawyer's liability on the borrower's behalf?

A: No. The opinion concluded the lender cannot waive the lawyer's liability to the borrower without the borrower's permission.

Q: Could the lawyer still be responsible for document errors?

A: The opinion concluded that a lawyer who neither drafts nor reviews the documents and does not represent the borrower does not appear responsible for their errors.

Background and rules framework

The opinion did not cite a numbered Rule of Professional Conduct. It applied the unauthorized-practice principle of State v. Pledger (a party with a primary interest may prepare a document) and CPR 100's treatment of disclosure in closings, conditioning the lawyer's freedom from a duty to the borrower on timely, preferably written, disclosure that the lawyer represents only the lender.

Citations and references

Cases:

• State v. Pledger, 257 N.C. 634, 127 S.E.2d 337 (1962), a party with a primary interest in a document may prepare it

Other opinions cited:

• CPR 100 (North Carolina): disclosure and representation in residential closings

See also

• NC Ethics Op. RPC 41: lender preparation of 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/rpc-40/

Original opinion text

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

Editor's Note: This opinion was originally published as RPC 40 (Revised).

Inquiry:

Lender A wishes to retain Attorney B to examine the title, render a title opinion, obtain title insurance, record documents and disburse funds at a real estate closing. Lender A will prepare all the necessary documents and states that it will hold Attorney B harmless for all errors in the closing documents. The borrower will be charged a document preparation fee by Lender A and will be notified that Attorney B represents only Lender A.

• Does Lender A engage in the unauthorized practice of law by preparing the closing documents and charging a fee for this service?

• Does Attorney B have a duty to notify the borrower of any problems Attorney B detects during the title search?

• May Lender A waive Attorney B's liability for errors in the closing documents on behalf of itself and the borrower?

Opinion:

• Lender A has a "primary" interest in the closing documents. Therefore, under the rule of State v. Pledger, 257 N.C. 634, 127 S.E.2d. 337 (1962), Lender A may draft these documents without engaging in the unauthorized practice of law.

• If Attorney B clearly explains to the borrower that he represents only Lender A and makes that disclosure far enough in advance of the closing that the borrower can procure his own counsel if he wishes, Attorney B will have no duty to notify the borrower of potential defects in the title. CPR 100. It is suggested that any such notice be written.

• Lender A may not "waive" Attorney B's liability for errors in the closing documents without the borrower's permission to do so. However, if Attorney B does not draft or review the documents and does not represent the borrower in any respect, it does not appear that Attorney B could be held responsible for errors in the closing documents.