After a real estate closing, can or must a lawyer who learns the buyer and seller committed fraud (including bad checks) disclose it to the lender or law enforcement?
NY State Bar Ethics Opinion 998: Disclosing Client Fraud After a Short-Sale Closing
Short answer: Lawyers who learn that the buyer and seller in a short-sale closing defrauded the lender, including by delivering fraudulent checks, generally may not disclose that conduct; the information is confidential under Rule 1.6 and Rule 3.3 does not apply because no proceeding before a tribunal is involved. Disclosure is permitted only to the extent necessary to withdraw a representation the lender still relies on (Rule 1.6(b)(3)), by the buyer's lawyer to collect the fee (Rule 1.6(b)(5)(ii)), or where required by other law (Rule 1.6(b)(6)).
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York 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.
Plain-English summary
In a short-sale residential transaction, the buyer and seller secretly agreed, without telling their lawyers, that the buyer would pay the seller an extra amount beyond what the mortgage holder approved, and both swore affidavits that there were no side agreements. The buyer's checks for the broker's fee and the buyer's own lawyer's fee turned out to be fraudulent (drawn on a nonexistent account), and the seller's lawyer learned of the side agreement when the seller sought advice about the bad check. The lawyers asked whether they may or must reveal the fraud to the lender or law enforcement.
The opinion concludes the facts are confidential information under Rule 1.6: they were gained during or relating to each lawyer's representation and their disclosure would be detrimental to that lawyer's client. Each lawyer is therefore barred from revealing the information unless the client consents or a Rule 1.6(b) exception applies. Rule 3.3, which can compel disclosure of fraud related to a proceeding before a tribunal, does not apply because the lawyers did not represent clients before a tribunal and no proceeding was pending.
Reviewing the permissive Rule 1.6(b) exceptions, the opinion finds the crime-prevention exception (1.6(b)(2)) inapplicable because the frauds appeared complete rather than continuing. It identifies three exceptions that could permit limited disclosure: Rule 1.6(b)(3), to the extent needed to withdraw an opinion or representation the lender reasonably relies on (for example, an implied representation that the transaction was free of fraud); Rule 1.6(b)(5)(ii), permitting the buyer's lawyer to disclose to the extent necessary to collect the fee paid with the fraudulent check, with disclosure kept no greater than reasonably necessary; and Rule 1.6(b)(6), where other law requires disclosure (a legal question the committee did not resolve). The opinion notes that confidentiality can prevent a lawyer from pursuing remedies others could pursue, and that whether the lawyers could be compelled to disclose under privilege law is a separate question.
In practice
Under this opinion, a lawyer who discovers, after a closing, that the parties defrauded the lender cannot simply report the fraud to the lender or to law enforcement. The opinion holds that, under New York's Rule 1.6 as it stood at the time, the information is confidential and the permissive disclosure exceptions are narrow: withdrawing a representation the lender still relies on, collecting the buyer's lawyer's fee, or complying with other law. The committee distinguished New York's confidentiality rule from the broader ABA Model Rule 1.6(b)(3), noting New York gives a significantly narrower scope to reveal information about already-completed crimes.
Common questions
Q: Can a lawyer report a client's completed real estate fraud to the lender?
A: Only in limited circumstances. The opinion treats the fraud as confidential under Rule 1.6, so disclosure is generally barred unless a specific permissive exception applies, such as withdrawing a representation the lender still relies on.
Q: Does Rule 3.3 require the lawyer to disclose the fraud?
A: No. The opinion concludes Rule 3.3 does not apply because the lawyers did not represent clients before a tribunal and no proceeding was pending; Rule 3.3's remedial-disclosure duty is tied to conduct related to a tribunal.
Q: Can the buyer's lawyer reveal the fraud to collect the unpaid fee?
A: To a limited extent. Rule 1.6(b)(5)(ii) permits disclosure necessary to collect the fee paid with the fraudulent check, but the opinion says disclosure must be no greater than reasonably necessary and may not extend to the side agreement.
Q: What about the bad check the lawyer received?
A: The opinion notes that the receipt of a fraudulent check may not be protected by attorney-client privilege, so while voluntary disclosure is restricted by Rule 1.6, the lawyer could be compelled to disclose some such information through legal process.
Background and rules framework
The opinion applies New York Rule 1.6 (corresponding to Model Rule 1.6 on confidentiality). Rule 1.6(a) defines confidential information and bars its disclosure absent consent or a permissive exception; Rule 1.6(b) lists permissive exceptions, including 1.6(b)(2) (prevent a client crime), 1.6(b)(3) (withdraw an opinion or representation still relied on that was based on materially inaccurate information or is furthering a crime or fraud), 1.6(b)(5)(ii) (collect a fee), and 1.6(b)(6) (comply with other law). The opinion explains that Rule 3.3 (Model Rule 3.3 on candor toward a tribunal) compels disclosure only where the conduct relates to a proceeding before a tribunal, which was absent here, and contrasts New York's narrower confidentiality exceptions with ABA Model Rule 1.6(b)(3).
Citations and references
Rules of Professional Conduct:
- New York RPC 1.6(a) (definition of confidential information; cf. Model Rule 1.6)
- New York RPC 1.6(b)(2), (b)(3), (b)(5)(ii), (b)(6) (permissive disclosure exceptions)
- New York RPC 3.3 (candor toward a tribunal; held inapplicable; cf. Model Rule 3.3)
Other opinions cited:
- N.Y. State 866 (2011): meaning of "during" the representation and continuing crimes
- N.Y. State 980 (2013): limits on revealing information to collect a fee
- N.Y. State 684 (1996): disclosure to a credit bureau not necessary to collect a fee
See also
- NY State Bar Op. 1118: Disclosing Confidences to Collect a Fee
- NY State Bar Op. 1057: Disclosing Client Information on a Motion to Withdraw
- NY State Bar Op. 1011: Duty to Remedy Fraudulent Visa Submissions
Source
- Landing page: https://nysba.org/ethics-opinion-998/