Must a foreclosure lawyer get consent when a title search shows the property also has liens held by other clients the lawyer represents in separate foreclosures?

Plain-English summary

A mortgage foreclosure attorney often found, during title searches, that other liens on the property were held by institutions the attorney also represented in other foreclosures. The attorney had been obtaining separate conflict waivers for each file, a sometimes lengthy process, and the clients were not inclined to give blanket waivers. The question was whether the attorney must obtain a waiver or consent when a title examination reveals that clients represented in other foreclosures also hold liens on the property being foreclosed.

The committee concluded that representing a foreclosure client against lienholders the attorney represents in other foreclosures involves direct adversity between current clients and requires their consent after consultation under Rule 1.7(a). The rule rests on the duty of loyalty and applies even to wholly unrelated matters: a lawyer ordinarily may not act as advocate against a person the lawyer represents in some other matter without consent. The committee acknowledged the argument that obtaining consent is time-consuming and increases foreclosure costs, noted that lawyers can counsel clients about this under Rule 2.1, but said clients must decide whether to reserve case-by-case consent or give a blanket waiver, and some of the inquirer's clients insisted on case-by-case consent. It also found it may be difficult to tell whether a foreclosure is a mere formality or involves significant disputed issues, and that policy exceptions are for the Supreme Court, not the committee. The committee noted the analysis would be the same under the new rules effective October 1, 2005, except those rules require informed consent, confirmed in writing.

In practice

Under this opinion, on the facts presented, a foreclosure lawyer cannot skip consent just because the conflict is routine: foreclosing against a lienholder the lawyer represents elsewhere is direct adversity under Rule 1.7(a) needing each client's consent after consultation. The committee declined to treat routine foreclosures as a mere formality exempt from the rule and pointed out that, under the rules effective October 1, 2005, the consent must be informed and confirmed in writing.

Common questions

Q: A lien on the property I'm foreclosing is held by another client of mine. Do I need consent?

A: Yes. The committee concludes this is direct adversity between current clients under Rule 1.7(a), requiring each client's consent after consultation.

Q: Does it matter that the foreclosure seems routine?

A: The committee declined to treat foreclosures as a mere formality, noting it may be hard to tell whether one involves significant disputed issues, and that creating exceptions is for the Supreme Court, not the committee.

Q: Can I just use a blanket waiver?

A: The committee says a blanket waiver may be appropriate in many cases, but clients decide; some of the inquirer's clients insisted on case-by-case consent. Under the rules effective October 1, 2005, consent must be informed and confirmed in writing.

Background and rules framework

The opinion applies South Carolina's version of Model Rule 1.7 (conflicts of interest, specifically 1.7(a) direct adversity between current clients), at SCACR 407, and references Rule 2.1 (a lawyer's advisory role). It notes the rule revisions effective October 1, 2005, which require informed consent confirmed in writing.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / SC Rule 1.7(a) (direct adversity between current clients; consent after consultation)
• MR 2.1 / SC Rule 2.1 (lawyer as advisor; counseling clients about consent)

See also

• SC Bar Ethics Op. 04-04: Two divorce clients and shared evidence
• SC Bar Ethics Op. 05-13: Representing a client against the lawyer's former firm

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-05-14/

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 05-14

RULE 1.7(a)

Facts:
A mortgage foreclosure attorney, when performing a title search in connection with the foreclosure, often finds other liens encumbering the property. It is not uncommon for those liens to be held by institutions that the attorney also represents in other foreclosures. In the past, the attorney has obtained separate conflict waivers for each file. That process has at times been lengthy. The clients are not inclined to give blanket waivers.

Question
Must a real estate attorney handling a mortgage foreclosure proceeding obtain a waiver or consent to a conflict of interest when a title examination reveals that clients that the attorney represents in other foreclosure proceedings also hold liens on the property?

Summary
Representation of a foreclosure client against lienholders that the attorney represents in other foreclosures involves “direct adversity” between current clients and requires their “consent after consultation” under Rule 1.7(a). The result would be the same under the revisions of the rules of professional conduct that go into effect on October 1, 2005, except that the new rules required “informed consent, confirmed in writing.”

Opinion
Rule 1.7(a) of the Rules of Professional Conduct dealing with conflicts of interest provides:

(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:

(1) The lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and

(2) Each client consents after consultation.

The rule is based on the lawyer’s duty of loyalty to a current client; it applies even if the matters are unrelated: “As a general proposition, loyalty to a client prohibits undertaking representation directly adverse to that client without that client's consent. Paragraph (a) expresses that general rule. Thus, a lawyer ordinarily may not act as advocate against a person the lawyer represents in some other matter, even if it is wholly unrelated.” Rule 1.7, cmt., Loyalty to Client. A later comment expresses the same concept in connection with litigation: “Ordinarily, a lawyer may not act as advocate against a client the lawyer represents in some other matter, even if the other matter is wholly unrelated.” The comment indicates that a lawyer may undertake such representation “if both clients consent upon consultation.” Rule 1.7, cmt. Conflicts in Litigation.

During its discussions, the Committee considered arguments that obtaining consent from the lienholders was time consuming and increased the cost of foreclosures. Lawyers can and should counsel their clients about such matters, see Rule 2.1, but ultimately, clients must decide whether they want to reserve the right to consent on a case-by-case basis, even if this right increases the cost of foreclosures, or agree to a blanket waiver or consent to avoid such costs. Although a waiver may be appropriate in many cases, the inquiry shows that at least some of the inquirer’s clients consider this matter to be of sufficient importance that they will not agree to blanket waivers, but instead insist on deciding whether to give consent on a case-by-case basis. The Committee also considered whether routine foreclosure proceedings in fact involved direct adversity or whether the adversity was a mere formality. In the Committee’s opinion, it may be difficult to determine whether a foreclosure proceeding is a mere formality or involves significant disputed issues. Moreover, policy questions about possible exceptions to the rules are for the Supreme Court, not this Committee to decide.

While this opinion is issued under the current rules of professional conduct, the analysis would be the same under the new rules that will go into effect on October 1, 2005. Rule 1.7(a)(1) and cmt. 6. The new rules will require clients to give “informed consent, confirmed in writing.” See Rule 1.7(a)(4).