NYSBA 2014-08-01

Can a New York lawyer who works as a real estate broker represent an owner in foreclosure to then broker the firm's purchase of the property?

Short answer: No. The opinion concludes the dual role is a nonconsentable conflict under Rule 1.7: the lawyer's interest in brokering the later purchase would taint the lawyer's judgment in the foreclosure case, and client consent cannot cure it.

Disclaimer: Advisory only. Not binding precedent.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NY State Bar Ethics Opinion 1013: Lawyer-Broker Representing an Owner in Foreclosure

Short answer: A lawyer who also works as a broker may not represent a property owner in a foreclosure case while planning to have the lawyer's brokerage firm buy the property, because the dual role creates a nonconsentable conflict of interest.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

View original opinion

Plain-English summary

The inquirer is both a lawyer and a broker at a brokerage firm that wants to buy a particular property. The owner is in foreclosure. The inquirer proposes to represent the owner in the foreclosure to prevent it, so the brokerage firm can then buy the property, arguing the two roles are played in different capacities.

The opinion concludes the lawyer may not do this. It relies on the committee's settled line of opinions holding that a lawyer may not act as attorney for a party to a real estate transaction in which the lawyer (or the lawyer's spouse) acts as broker, because the dual role pits the client's interests against the lawyer's. Per those opinions, the conflict is not waivable under Rule 1.7(b).

The opinion applies the same analysis to the foreclosure facts. Under Rule 1.7(a)(2), a reasonable lawyer would conclude there is a significant risk that the lawyer's professional judgment for the owner would be adversely affected by the lawyer's own financial interest, because any outcome in which the lender takes the property, even if that were the best result for the client, would defeat the lawyer's plan to broker the purchase.

The committee further holds that the lawyer could not provide competent and diligent representation as required by Rule 1.7(b), since the lawyer's judgment would be tainted by the desire to broker the later purchase, so the conflict cannot be cured by the client's informed consent under Rule 1.7(b)(4).

In practice

Under this opinion, and under the New York rule as it stood at the time, the lawyer-broker conflict that the committee has long treated as nonconsentable in ordinary real estate deals extends to a lawyer representing a distressed owner in foreclosure while planning to broker the firm's purchase of the same property. Per the opinion, the key factor is that the lawyer's stake in the later purchase is in tension with the client's interest in the foreclosure outcome, and because the lawyer cannot reasonably believe competent and diligent representation is possible, client consent does not save the arrangement.

Common questions

Q: Can a lawyer-broker represent a homeowner in foreclosure and then broker a sale of the property?

A: No, under this opinion, where the lawyer plans to broker the firm's purchase of the same property. The committee holds (paragraphs 5 to 6) that the lawyer's interest in the later purchase creates a nonconsentable conflict under Rule 1.7.

Q: Can the client waive this conflict by giving informed consent?

A: No. The opinion concludes (paragraph 6) that the lawyer cannot reasonably believe he can provide competent and diligent representation, so the conflict is nonconsentable under Rule 1.7(b)(2) and cannot be cured by consent under Rule 1.7(b)(4).

Q: Why is the lawyer's judgment considered compromised?

A: Per the opinion (paragraph 5), any foreclosure outcome in which the lender obtains the property, even the best possible result for the client, would thwart the lawyer's plan to broker the purchase, creating a significant risk under Rule 1.7(a)(2) that the lawyer's judgment is adversely affected.

Background and rules framework

The opinion interprets Rule 1.7 (Model Rule 1.7), which prohibits representing a client when a reasonable lawyer would conclude there is a significant risk that the lawyer's professional judgment will be adversely affected by the lawyer's own financial, business, property, or personal interests, unless the lawyer reasonably believes competent and diligent representation is possible and the client gives informed consent confirmed in writing.

The committee treats the foreclosure facts as a variation on its long-standing lawyer-as-broker prohibition, grounded in the principle that a lawyer should not have a personal stake in the advice rendered, and in the contingent nature of the lawyer's broker interest, which depends on the transaction going a particular way.

Citations and references

Rules of Professional Conduct:

New York RPC 1.7(a), (b) (conflicts of interest; current clients) / Model Rule 1.7

Other opinions cited:

N.Y. State 919 (2012): lawyer-broker conflict is nonconsentable
N.Y. State 753 (2002): rationale that a lawyer should not have a personal stake in the advice rendered
N.Y. State 493 (1978), 340 (1974), 291 (1973), 244 (1972), 208 (1971): lawyer may not act as attorney and broker in the same transaction

Source

Landing page: https://nysba.org/ethics-opinion-1013/