Can a lawyer who serves as trustee on a deed of trust switch sides and represent the lender in the foreclosure, bankruptcy, or a loan workout?

Plain-English summary

The opinion addressed when a lawyer serving as trustee under a deed of trust may take on a partisan role for the lender. It concluded that former service as trustee did not disqualify a lawyer from later assuming a partisan role in a foreclosure, whether the lawyer resigned as trustee before or after foreclosure proceedings began and it became apparent the foreclosure would be contested (citing CPR 220 and RPC 82).

The opinion reached the same result where the borrower filed bankruptcy: a lawyer could resign as trustee and represent the lender in seeking to lift the automatic stay in the related bankruptcy, just as in a contested foreclosure. It drew the line, however, at a lawyer simultaneously serving as trustee and negotiating a loan modification or workout as the lender's attorney (citing RPC 82). A lawyer serving as trustee could draft and preside over the execution of documents evidencing a modification the lender and borrower negotiated themselves, because in that role the trustee represented neither side and engaged in no partisan activity inconsistent with the duty of impartiality. The opinion noted a lawyer who resigned as trustee to perform a partisan service for the lender might thereafter be reappointed as trustee and initiate foreclosure.

Currency note

This opinion was issued in 1990, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the rule numbering then in effect. 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 Treat this page as historical context, not current guidance.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: Could a deed-of-trust trustee resign and then represent the lender in the foreclosure?

A: Yes. Opinion #1 concluded former service as trustee did not disqualify the lawyer from a partisan role in the foreclosure, whether the lawyer resigned before or after a contested foreclosure began.

Q: Could the trustee resign to represent the lender in the borrower's bankruptcy?

A: Yes. Opinion #2 concluded a lawyer could resign as trustee and represent the lender in seeking to lift the automatic stay in the related bankruptcy.

Q: Could a sitting trustee negotiate a loan workout for the lender?

A: No. Opinion #3 concluded a lawyer could not simultaneously serve as trustee and negotiate a modification as the lender's attorney, though the trustee could neutrally draft and preside over documents the parties negotiated themselves.

Background and rules framework

At the time, the opinion applied the conflict-of-interest and impartiality principles governing a lawyer who serves as a deed-of-trust trustee, a neutral fiduciary role, while also being asked to act for the lender. In current numbering the subject matter corresponds to Model Rule 1.7 (conflict of interest). It relied on prior North Carolina opinions CPR 220 and RPC 82.

Citations and references

Rules of Professional Conduct:

• Current counterpart: Model Rule 1.7 (conflict of interest: current clients)

Other opinions cited:

• CPR 220; RPC 82: trustee resigning to assume a partisan role in foreclosure

See also

• NC State Bar 2009 FEO 8: Partition Commissioner
• NC State Bar 2003 FEO 12: Insurer Settlement Advice

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-90/

Original opinion text

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

Inquiry #1:

Can a trustee who has initiated a foreclosure proceeding resign after it has become contested and then act as the lender's counsel in the foreclosure?

Opinion #1:

Yes. It has long been recognized that former service as a trustee does not disqualify a lawyer from assuming a partisan role in regard to foreclosure under a deed of trust. CPR 220, RPC 82. This is true whether the attorney resigns as trustee prior to the initiation of foreclosure proceedings or after the initiation of such proceedings when it becomes apparent that the foreclosure will be contested.

Inquiry #2:

Where foreclosure is pending and the borrower files bankruptcy, can the trustee under the deed of trust resign as trustee and thereafter represent the lender in the bankruptcy proceeding and the foreclosure proceeding?

Opinion #2:

Yes. Just as a lawyer may resign as trustee and undertake the representation of the lender in a contested foreclosure proceeding, so also may a lawyer resign as trustee and undertake the representation of the lender in seeking to have an automatic stay lifted in a related bankruptcy proceeding.

Inquiry #3:

Where the lender believes the borrower is in default but no foreclosure proceedings have been instituted, may an attorney serving as trustee in a deed of trust represent the lender in an amicable modification or loan workout agreement? Does such representation of the lender preclude the attorney from thereafter initiating foreclosure proceedings as trustee?

Opinion #3:

No, a lawyer serving as trustee may not simultaneously participate in the negotiation of a loan modification or workout agreement as attorney for the lender. RPC 82. An attorney serving as trustee may, however, draft and preside over the execution of documents evidencing a modification or workout agreement negotiated between the lender and borrower. Under such circumstances, the trustee would not be representing the interests of either and would be engaged in no partisan activity in conflict with the obligation to be impartial. It is possible that a lawyer who resigns as trustee to perform some partisan service for the lender, such as the negotiation of a modification agreement, may thereafter be reappointed as trustee and initiate foreclosure proceedings.