Can a South Carolina lawyer who represents the lender close a real estate transaction using documents prepared by another South Carolina attorney?

Plain-English summary

An out-of-state mortgage lender wanted Attorney A to close South Carolina real estate transactions for the lender, with verification in each closing that the paperwork was prepared by or under the supervision of a South Carolina attorney. The committee concluded the Rules of Professional Conduct do not prohibit this arrangement, but cautioned that potential ethical risks remain: conflict of interest and assisting the unauthorized practice of law.

On conflicts, the opinion points to Rule 1.7(b), which bars representation that may be materially limited by the lawyer's responsibilities to a third person or the lawyer's own interests unless the lawyer reasonably believes the representation will not be adversely affected and the client consents after consultation. It cites the South Carolina Supreme Court's footnote in Doe v. McMaster that the ethical concerns arise when there is a business relationship between the lender and the attorney, and notes the facts suggested such a relationship existed. The opinion also points to earlier South Carolina opinions (02-16, 00-17) on when an attorney-client relationship can form with a borrower at a closing.

On unauthorized practice, the opinion quotes Rule 5.5(b) (a lawyer shall not assist a non-member of the bar in the unauthorized practice of law) and cites State v. Buyers Service Co., which held that the title search, preparation of loan documents, closing, and recording are the practice of law and must be done by or under the supervision of a licensed attorney. The committee declined to determine what constitutes the practice of law and made no determination on the legal (as opposed to ethical) risks.

In practice

Under this opinion, on the facts presented, a lawyer representing the lender could participate in a closing using documents prepared by or under the supervision of another South Carolina attorney. The committee tied the conflict analysis to Rule 1.7(b), flagging the business relationship between lawyer and lender as the trigger, and tied the unauthorized-practice analysis to ensuring the title search, document preparation, and recording are performed by or under a licensed South Carolina attorney consistent with Buyers Service. The committee expressly declined to opine on the legal risks (attorney-preference law, malpractice exposure) and on what constitutes the practice of law.

Common questions

Q: Can I close a real estate deal for the lender if a different attorney prepared the documents?

A: Yes. The opinion concludes the Rules of Professional Conduct do not prohibit it, provided the documents were prepared by or under the supervision of a South Carolina attorney.

Q: What conflict issue does representing the lender raise?

A: Rule 1.7(b). The opinion notes that, per the Doe v. McMaster footnote, ethical concerns arise where there is a business relationship between the lender and the attorney, which the facts suggested.

Q: How do I avoid assisting the unauthorized practice of law?

A: The opinion directs that the title search, preparation of loan documents, closing, and recording be conducted by or under the supervision of a South Carolina attorney, consistent with State v. Buyers Service Co. and Rule 5.5(b).

Background and rules framework

The opinion applies South Carolina's versions of Model Rule 1.7 (conflicts of interest) and Model Rule 5.5 (unauthorized practice of law), set out in the South Carolina Rules of Professional Conduct, Rule 407, SCACR. It situates the unauthorized-practice question within South Carolina case law defining real estate closing tasks as the practice of law (State v. Buyers Service Co.).

Citations and references

Rules of Professional Conduct:

• MR 1.7 / SC Rule 1.7(b) (conflict of interest; general rule)
• MR 5.5 / SC Rule 5.5(b) (assisting the unauthorized practice of law)

Cases:

• State v. Buyers Service Co., Inc., 292 S.C. 426, 357 S.E.2d 15 (S.C. 1987), real estate closing tasks are the practice of law
• Doe v. McMaster, 355 S.C. 306, 585 S.E.2d 773 (S.C. 2003), conflict concerns where lender and attorney have a business relationship

Other opinions cited:

• SC Ethics Advisory Opinion 02-16 (formation of an attorney-client relationship at a closing)
• SC Ethics Advisory Opinion 00-17 (representing only one party at a closing under Rule 4.3)

See also

• SC Bar Ethics Op. 04-02: Reporting a lender's "witness only" closings
• ABA Formal Op. 01-423: Forming partnerships with foreign lawyers

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-04-01/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 04-01

Facts
An out-of-state mortgage lender wants Attorney A to close real estate transactions in South Carolina. Attorney A’s client would be the lender. Attorney A would require verification in each closing that the paperwork was prepared under the supervision of an attorney licensed to practice in South Carolina.

Question
Do the Rules of Professional Conduct prohibit Attorney A from participating in a closing where Attorney A represents the lender and the closing documents were not prepared by Attorney A but were prepared by or under the supervision of an attorney licensed to practice in South Carolina?

Summary
No, the Rules of Professional Conduct do not prohibit Attorney A from participating in a closing where Attorney A represents the lender and the closing documents were not prepared by Attorney A but were prepared by or under the supervision of an attorney licensed to practice in South Carolina. However, Attorney A would be cautioned as to the potential risks that are possible in such situations.

Opinion
The Rules of Professional Conduct do not prohibit an attorney from participating in a closing where the attorney represents the lender and the closing documents are prepared by another attorney licensed to practice in South Carolina. However, attorneys should exercise caution in entering into such an agreement as there may be potential ethical risks involved in the proposed arrangement: conflict of interest and unauthorized practice of law. There may also be potential legal risks involved, including, but not limited to, attorney preference in real estate transactions and the risk of malpractice claims if the attorney drafting the documents made errors that the closing attorney knew or should have known. The Committee does not make any determination as to the legal risks associated with the proposed arrangement.

1. Conflict of Interest

Rule 1.7 (b) of the Rules of Professional Conduct states as follows:

A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless: (1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

In Doe v. McMaster, 355 S. C. 306, 585 S.E.2d 773 (2003), the Court indicated that Rule 1.7 was not applicable in the specific case at hand, but noted in a footnote that “These ethical concerns are only applicable when there is a business relationship between Lender and the attorney.” It appears from the facts presented that there would be a business relationship between the attorney and the lender in the proposed arrangement, thus calling into question the Supreme Court’s comment to ensure compliance with Rule 1.7.

Previous South Carolina Bar Ethics Advisory Opinions have discussed the possibility of the creation of the attorney-client relationship in real estate transactions and may prove helpful in clarifying the attorney’s duty. While it is possible to represent only one party in a real estate transaction, South Carolina Bar Ethics Advisory Opinion 02-16 suggested the following:

A lawyer may create an attorney-client relationship when the lawyer “volunteer[s] to provide a legal explanation of the various documents involved in settlement of” a loan and “affirmatively respond[s] to questions” of the client. Nelson v. Nationwide Mortgage Corp., 659 F. Supp. 611, 618 (D.D.C. 1987). In determining whether an attorney-client relationship is created, the key consideration is whether, under the circumstances, a prospective client would reasonably have relied upon the lawyer for legal advice. A lawyer’s subjective belief that no attorney-client relationship is created does not preclude the finding that such a relationship exists. South Carolina Bar Ethics Adv. Op. No. 02-16.

See also South Carolina Bar Ethics Adv. Op. No. 00-17, which states as follows:

A lawyer may ethically represent only the seller at closing provided the lawyer complies with the requirements of Rule 4.3 (Dealing with Unrepresented Person). The rule states: In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.

2. Unauthorized Practice of Law

Rule 5.5 (b) of the Rules of Professional Conduct states “A lawyer shall not assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law.”

From the facts presented, all legal documents would be prepared by an attorney licensed to practice in South Carolina and thus may not constitute the unauthorized practice of law; however, the Committee declines to make any determination as to what constitutes the practice of law. In State v. Buyers Service Co., Inc., 292 S.C. 426, 357 S.E.2d 15 (1987), the South Carolina Supreme Court held that the title search, preparation of loan documents, closing, and recording of the title and mortgage were considered the practice of law and should thus be performed by or under the supervision of a licensed attorney. Attorneys participating in the proposed arrangement should ensure that the completion of the title search, preparation of loan documents, and recording of the title and mortgage are conducted by or under the supervision of an attorney licensed to practice in South Carolina and are not performed in a manner as to attempt to circumvent the Supreme Court’s ruling in Buyers Service. See also In the Matter of Stephen M. Pstrak, Op. No. 25767 (S.C. Jan. 12, 2004).