After foreclosing as trustee under a deed of trust, can the attorney represent the foreclosure-sale purchaser against the former debtor?

Plain-English summary

An attorney was the named trustee of a deed of trust given by a debtor to secure a debt to a lender. The attorney conducted a foreclosure sale, the high bidder paid an amount producing a surplus after all known liens, and the attorney satisfied the liens and foreclosure expenses from the proceeds and recorded a special warranty deed to the bidder. In the meantime the debtor wrongfully removed improvements from the property, and the bidder asked the attorney to represent the bidder against the debtor. The inquiry asked whether, after depositing the surplus with the clerk, the attorney could represent the bidder in a tort claim against the debtor or in a proceeding under G.S. §45-21.32 to claim part of the surplus.

The opinion answered yes. Because an attorney serving as trustee under a deed of trust does not represent the grantor/debtor as an attorney, the attorney may, after foreclosing, represent the interests of an entity adverse to the debtor in a cause of action related to the foreclosure without violating Rule 5.1(d).

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. The provision it applies (Rule 5.1(d), conflicts of interest) has since been renumbered and revised (the corresponding Model Rule is 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 Treat this page as historical context, not current guidance.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: Does a trustee under a deed of trust represent the debtor as a lawyer?

A: No. The opinion concluded that an attorney serving as trustee under a deed of trust does not represent the grantor/debtor as an attorney.

Q: Could the foreclosing attorney represent the sale purchaser against the debtor?

A: Yes. The opinion concluded the attorney could represent a party adverse to the debtor in a cause of action related to the foreclosure without violating Rule 5.1(d).

Background and rules framework

The opinion applied North Carolina Rule 5.1(d), the conflict-of-interest provision (corresponding to Model Rule 1.7). The analysis turned on the trustee's role: because serving as trustee under a deed of trust is not an attorney-client representation of the debtor, the later adverse representation did not create a conflict the rule prohibited.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 5.1(d) (conflicts of interest)
• MR 1.7 (concurrent conflicts of interest)

Statutes:

• N.C. Gen. Stat. §45-21.32 (claim to surplus from a foreclosure sale)

See also

• NC Ethics Op. RPC 56: representation of insurer and insureds
• NC Ethics Op. RPC 160: lawyer as member of a hospital's board of trustees

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-64/

Original opinion text

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

Inquiry:

Attorney is the named trustee of a deed of trust granted by Debtor to secure a debt to Lender. Attorney commences a foreclosure proceeding and conducts a sale at which Bidder enters the high bid. The amount of the bid is sufficient to produce a surplus after satisfying all liens known to Attorney. At the end of the upset period, Bidder timely tenders the amount of the bid, which Attorney deposits in his trust account and from which Attorney promptly satisfies all known liens and expenses of the foreclosure. Later, Attorney records a special warranty deed to Bidder. In the interim, Debtor has wrongfully caused removal of improvements affixed to the subject property, whereupon Bidder asks Attorney to represent Bidder against Debtor. Under these circumstances, if Attorney deposits the surplus with the Clerk, may Attorney then ethically represent Bidder in a tort claim against Debtor (for replevin or damages from conversion) or in a proceeding pursuant to G.S. §45-21.32 to assert a claim for part of the surplus held by the Clerk?

Opinion:

Yes. Since an attorney serving as trustee pursuant to the terms of a deed of trust does not represent the grantor/debtor as an attorney, such an attorney may, after foreclosing, represent the interests of an entity adverse to the grantor/debtor in a cause of action related to the foreclosure without violating Rule 5.1(d).