Must a real estate closing lawyer get the lender's or mortgage broker's written informed consent to represent multiple parties, and can the lawyer use an advance consent?

Plain-English summary

A closing attorney noted that the Rules require obtaining informed consent confirmed in writing from each client when representing multiple clients in a transaction like a closing. The lawyer could readily get consent from buyer and seller but often not from the lender or mortgage broker, which typically responded that it did not regard the closing attorney as representing it because it had its own corporate lawyers. The lawyer asked whether the lender's or broker's written informed consent is necessary, whether a general advance consent covering all future closings is permissible, and what to do if the lender or broker refuses to consent.

The committee framed the answer around whether a client-attorney relationship exists with the lender or broker. Such a relationship can arise by express agreement or, absent an engagement agreement, by implication if the attorney performs legal services for the lender or broker and fails to clarify the lawyer's role (citing Opinion 02-16 and the Wilcox and Crystal treatise). If a client-attorney relationship exists, the attorney must obtain the lender's or broker's informed consent confirmed in writing under Rule 1.7(b)(4) to represent other parties as well; if that consent is refused, the attorney may not proceed with the closing. The committee noted the consent need not be signed (Rule 1.7(b)(4) requires only that it be confirmed in writing), though prudent lawyers will seek signed consents, and that informed consent requires discussing the material risks and reasonably available alternatives under Rule 1.0(f). Drawing on Comment 20 to Rule 1.7, the committee concluded a closing attorney could ethically seek and accept a general advance consent from a lender or broker covering all future closings in which the attorney represents it, absent an actual conflict, because lenders and brokers are sophisticated commercial parties (and the inquiry noted they have their own corporate lawyers).

If no client-attorney relationship exists, the analysis is different. The lender or broker may make clear it does not want representation, or the attorney may make clear it is not undertaking to represent the lender or broker. On the facts, the lenders and brokers did not view the closing attorney as representing them. Absent a directive from the lender or broker, the attorney should make clear in writing that it is not agreeing to represent the lender or broker. If the attorney does not represent the lender or broker, no informed consent is needed; informed consent confirmed in writing is required only where a client-attorney relationship exists, which on these facts did not arise. The committee added that the closing attorney still supervises execution and recording of documents affecting the lender's interest, but does so as attorney for the buyer (or in a limited agency capacity), and that not representing the lender does not violate the Supreme Court's real estate decisions, which require a licensed South Carolina attorney to be responsible for the legal aspects and present at the closing, not to represent every party.

In practice

Under this opinion, on the facts presented, whether a closing lawyer needs the lender's or mortgage broker's consent turns on whether a client-attorney relationship exists. The committee held that if it does (by express agreement or implication), the lawyer must obtain the lender's informed consent confirmed in writing under Rule 1.7(b)(4) to multiple representation, or not proceed, and may rely on a general advance consent absent an actual conflict. If it does not, no consent is needed, and the lawyer should clarify the non-representation to the lender or broker in writing.

Common questions

Q: Does a closing lawyer always need the lender's written consent to multiple representation?

A: No. The committee concluded consent is required only if a client-attorney relationship exists with the lender or broker; if the lawyer does not represent the lender or broker, no consent is needed.

Q: Can the lawyer use a one-time advance consent for all future closings?

A: Yes. Relying on Comment 20 to Rule 1.7, the committee concluded a closing attorney may seek and accept a general advance consent from a lender or broker covering future closings, absent an actual conflict, given that lenders and brokers are sophisticated parties.

Q: What if the lender refuses to consent and it is a client?

A: If a client-attorney relationship exists and the lender refuses consent, the committee concluded the attorney may not proceed with the closing, because doing so would violate Rule 1.7(b)(4).

Q: How does a lawyer avoid an implied attorney-client relationship with the lender?

A: The committee advised that, absent a directive from the lender or broker, the attorney should make clear in writing that it is not agreeing to represent the lender or broker in the transaction.

Background and rules framework

The opinion applies South Carolina Rule 1.7 (conflict of interest; current clients), particularly Rule 1.7(b)(4) (informed consent confirmed in writing) and Comment 20 (advance waivers of future conflicts), together with the Rule 1.0(f) definition of informed consent. These correspond to Model Rules 1.7 and 1.0(e). The analysis turns on when a client-attorney relationship arises between a closing attorney and a lender or mortgage broker.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / SC Rule 1.7(b)(4) and Comment 20 (informed consent to multiple representation; advance consent to future conflicts)
• MR 1.0(f) / SC Rule 1.0(f) and Comment 6 (definition of informed consent)

Cases:

• In re Solomon, 307 S.C. 1, 413 S.E.2d 808 (1992), withdrawal or renewed consent when an actual conflict develops

Other opinions cited:

• SC Ethics Advisory Opinion 02-16 (implied attorney-client relationship with a buyer at a closing)
• SC Ethics Advisory Opinion 00-17 (representation of only the seller)

See also

• SC Bar Ethics Op. 05-18: Handling only the closing-table portion of a real estate closing
• SC Bar Ethics Op. 05-16: Conducting a real estate closing by mail
• SC Bar Ethics Op. 04-01: A lender's closing attorney also representing the buyer

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-06-01/

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 06-01

RULES 1.0(f) and 1.7

Facts:
The Rules of Professional Conduct require an attorney representing multiple clients in a transaction, such as a real estate closing, to obtain the informed consent from each client confirmed in writing. This rule exists, in part, so the parties understand the role of the attorney in the transaction. While in practice it has not been difficult to obtain consent from the buyer and seller, it is frequently difficult to obtain consent from the lender or mortgage broker. Often the response received by the attorney is that the lender or mortgage broker does not feel that the attorney represents it because it has its own corporate lawyers.

Questions:
(1) Is it necessary for the attorney to obtain the informed consent confirmed in writing of the lender or mortgage broker in a real estate transaction?
(2) If the informed consent of the lender or mortgage broker is necessary, may the attorney obtain a general, advance consent that would cover all transactions in which the attorney handles a closing in which the attorney represents the lender or mortgage broker?
(3) If informed consent is necessary, what steps should the attorney take if the lender or mortgage broker refuses to give such consent?

Summary of Opinion:
If a real estate closing attorney represents a lender or mortgage broker either by express agreement or by implication, the attorney must obtain the informed consent of the lender or mortgage broker confirmed in writing if the attorney will also be representing other parties at the closing. If the attorney cannot obtain such consent, the attorney should not proceed with the closing. However, the attorney may obtain a general, advance consent from the lender or mortgage broker to engage in such multiple representation, so long as no actual conflict of interest arises. See S.C. Rule of Prof. Conduct 1.7, comment 20. An appropriate time to seek such consent would be when the attorney is first engaged by the lender or mortgage broker to handle real estate closings in which the lender or mortgage broker will be making loans.

While the closing attorney may form a client-attorney relationship with a lender or mortgage broker, it is not necessary that such a relationship exist. The lender or the mortgage broker could make it clear that it does not want the attorney to represent it in the transaction or the attorney could make it clear that the attorney is not undertaking to represent the lender or the mortgage broker. On the facts of the inquiry, that appears to be the situation. The lenders or mortgage brokers with which the attorney is dealing do not view the closing attorney as representing them. In the absence of such a directive from the lender or mortgage broker, the attorney should make it in clear in writing to the lender or mortgage broker if the attorney is not agreeing to represent the lender or mortgage broker with regard to the transaction. If the attorney does not represent the lender or mortgage broker with regard to the transaction, it is not necessary for the attorney to obtain the informed consent of the lender or mortgage broker. Informed consent confirmed in writing is only necessary if a client-attorney relationship exists, and on these facts, such a relationship does not arise.

Opinion:
In order to answer the questions presented to the Committee, it is necessary to define more precisely the nature of the relationship between a real estate closing attorney and the lender or mortgage broker.

I. Ethical Obligations if the Real Estate Closing Attorney Represents the Lender or Mortgage Broker
A closing attorney may, of course, form a client-attorney relationship with the lender or mortgage broker. Such a relationship could arise by express agreement, for example, if the closing attorney had a written engagement agreement with the lender or mortgage broker. In the absence of an engagement agreement, if the attorney undertakes to perform legal services for the lender or mortgage broker and fails to clarify the nature of the lawyer’s role, it is likely that a client-attorney relationship between the attorney and the lender or mortgage broker will arise by implication. Cf. S.C. Bar Ethics Adv. Op. #02-16 (even in the absence of an express engagement, “[a] lawyer who explains real estate closing documents to a buyer and escrows closing funds in the lawyer’s trust account may create an attorney-client relationship with the buyer”). See also Robert M. Wilcox & Nathan M. Crystal, Annotated South Carolina Rules of Professional Conduct 33-34 (3rd ed. 2005) (discussing implication of client-attorney relationship when lawyer fails to clarify lawyer’s role).

If a client-attorney relationship exists between the closing attorney and the lender or mortgage broker, either by express agreement or by implication, the attorney must obtain the informed consent of the lender or mortgage broker confirmed in writing if the attorney will also be representing other parties at the closing. See S.C. Rule 1.7(b)(4). With proper disclosures, a closing attorney may represent only one party, typically either the buyer or the seller, at the closing. See S.C. Bar Ethics Adv. Op. #00-17 (representation of only seller). Of course, if an actual conflict develops between multiple clients, the lawyer will be forced to withdraw or obtain the informed consent of the clients confirmed in writing regarding any continued representation. In re Solomon, 307 S.C. 1, 413 S.E.2d 808 (1992).

If a client-attorney relationship exists between the closing attorney and the lender or mortgage broker, again either by express agreement or by implication, and the lender or mortgage broker refuses to give its consent to the closing attorney engaging in multiple representation, then the attorney may not proceed with the closing. To do so would violate Rule 1.7(b)(4). It should be noted, however, that it is not necessary that the lender or mortgage broker sign a consent document. Rule 1.7(b)(4) requires the consent to be “confirmed in writing” but not signed by the client. Prudent lawyers, however, will seek to obtain signed consents to multiple representation if possible. It should also be noted that the concept of informed consent requires discussion between the attorney and client regarding the “material risks of and reasonably available alternatives to the proposed course of conduct.” S.C. Rule 1.0(f) and comment 6. See also comments 16-17 and 24-31 to Rule 1.7.

The Rules of Professional Conduct recognize that in some situations consent to a future conflict may be appropriate. Comment 20 to Rule 1.7 states that the effectiveness of a consent to a future conflict “is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails.” The comment goes on to state that a consent to a future conflict will generally be effective “if the client agrees to consent to a particular type of conflict with which the client is already familiar.” In addition, “if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective . . . “ In the Committee’s opinion, pursuant to this comment a closing attorney could ethically seek and accept a consent by a lender or mortgage broker to the closing attorney’s representing multiple parties in all future real estate closings in which the attorney represented the lender or mortgage broker, unless an actual conflict of interest arose. Lenders and mortgage brokers are sophisticated commercial parties whose business involves real estate closings. The inquiry refers to lenders or mortgage brokers who have their own corporate lawyers. This factor gives even greater support to the validity of such a prospective consent.

In summary, if a real estate closing attorney represents a lender or mortgage broker either by express agreement or by implication, the attorney must obtain the informed consent of the lender or mortgage broker confirmed in writing if the attorney will also be representing other parties at the closing. If the attorney cannot obtain such consent, the attorney should not proceed with the closing. However, the attorney may obtain a general, advance consent from the lender or mortgage broker to engage in such multiple representation, so long as no actual conflict of interest arises. See S.C. Rule of Prof. Conduct. 1.7, comment 20. An appropriate time to seek such consent would be when the attorney is first engaged by the lender or mortgage broker to handle real estate closings in which the lender or mortgage broker will be making loans.

II. Ethical Obligations if the Real Estate Closing Attorney Does Not Represent the Lender or Mortgage Broker
While the closing attorney may form a client-attorney relationship with a lender or mortgage broker, it is not necessary that such a relationship exist. The lender or the mortgage broker could make it clear that it does not want the attorney to represent it in the transaction or the attorney could make it clear that the attorney is not undertaking to represent the lender or the mortgage broker. On the facts of the inquiry, that appears to be the situation. The lenders or mortgage brokers with which the attorney is dealing do not view the closing attorney as representing them. In the absence of such a directive from the lender or mortgage broker, the attorney should make it in clear in writing to the lender or mortgage broker if the attorney is not agreeing to represent the lender or mortgage broker with regard to the transaction. If the attorney does not represent the lender or mortgage broker with regard to the transaction, it is not necessary for the attorney to obtain the informed consent of the lender or mortgage broker. Informed consent confirmed in writing is only necessary if a client-attorney relationship exists, and on these facts, such a relationship does not arise.

The closing attorney will, of course, be supervising the execution and recording of documents that affect the interest of the lender or mortgage broker. Such actions are being taken, however, not as attorney for the lender or mortgage broker but as attorney, typically for the buyer, complying with the conditions established by the lender or mortgage broker in the closing package necessary for the buyer to obtain financing for the transaction. The closing attorney may also be acting in a limited agency capacity for the lender or mortgage broker, for example in recording various documents.

While the Committee does not give opinions on the unauthorized practice of law, it appears to the Committee that the fact that the closing attorney does not represent the lender or mortgage broker at the closing does not violate Supreme Court decisions regarding handling of real estate closings. The Supreme Court’s decisions have focused on the necessity of a licensed South Carolina attorney being responsible for all legal aspects of a real estate transaction and being physically present at the closing. Nothing in the Court’s opinions indicates that an attorney must represent all of the parties to the transaction.