I represent the lender in a real estate closing. Can I prepare the seller's deed and bill the seller if the seller never asked me to and isn't my client?

Plain-English summary

An attorney represented a lender and drafted residential loan documents (typically a note and deed of trust) for the lender's customers, who paid for those documents. When a purchase-money loan had to be secured by a vendor's lien retained in a deed from a seller the attorney had no contact with, the attorney prepared a warranty deed for the seller to sign and delivered it to the title company, sometimes billing the seller for preparing the deed "if it is used." The attorney gave the purchaser-borrower written notice that he represented only the lender, but gave the seller no disclaimer or dual-representation disclosure.

Reviewing prior Opinions 150, 228, 408, and 448, the Committee concluded that a lender's attorney may prepare loan documents at the lender's request and be paid by the purchaser-borrower, and that a deed reserving a vendor's lien and transferring it to the lender could be a "loan document." If the attorney represents only the lender, either the lender or the attorney must fully advise the purchaser-borrower that the attorney does not represent the purchaser-borrower and that the purchaser-borrower should obtain other counsel; absent such notice, Rule 1.06 applies and the full disclosure it requires must be made to the purchaser-borrower.

On the seller side, the Committee concluded that neither the lender nor its attorney may suggest that the seller let the lender's attorney represent the seller in preparing the deed. If the seller requests or authorizes the attorney to prepare the deed, the attorney may do so, but he then engages in dual representation of the lender and the seller and must, before undertaking it, reasonably believe each client's representation will not be materially affected and obtain each client's consent after full Rule 1.06(c) disclosure. The Committee concluded that an attorney may not prepare a deed without the seller's request or authorization unless he gives the seller written notice that he prepared it at the lender's request, that he represents only the lender, and that the seller is advised to consult his own counsel before signing; if the attorney knows or later learns the seller has counsel, he must send the draft deed to that attorney.

Currency note

This opinion was issued in 1998, under the Texas Disciplinary Rules of Professional Conduct that took effect January 1, 1990. Texas did not adopt the ABA's Ethics 2000 revisions; its rules have been amended only piecemeal since (including the March 1, 2005 amendment to the fee rule, Rule 1.04, and the comprehensive 2021 revisions adopted by Texas Supreme Court order). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can the lawyer who represents only the lender prepare the loan documents and bill the borrower?

A: The Committee concluded yes. A lender's attorney may prepare loan documents at the lender's request and be paid by the purchaser-borrower, and a deed reserving and transferring a vendor's lien to the lender could itself be a "loan document."

Q: What must the lawyer tell the borrower?

A: The opinion concluded that either the lender or the attorney must fully advise the purchaser-borrower that the attorney does not represent the borrower and that the borrower should get other counsel; without that notice, Rule 1.06 applies and full disclosure must be made to the borrower.

Q: Can the lawyer prepare the seller's deed when the seller never asked him to?

A: The Committee concluded he may not, unless he gives the seller written notice that he prepared the deed at the lender's request, represents only the lender, and that the seller should consult his own counsel before signing. If the attorney knows or learns the seller has a lawyer, he must send the draft deed to that lawyer.

Q: What if the seller does ask the lender's lawyer to prepare the deed?

A: The opinion concluded the attorney may prepare it, but he then represents both the lender and the seller, which is dual representation; he must first reasonably believe neither representation will be materially affected and obtain each client's consent after full disclosure under Rule 1.06(c).

Background and rules framework

The opinion interprets Texas Disciplinary Rule 1.06 (conflict of interest: general rule; ABA Model Rule 1.7), the successor to former DR 5-105(C), and applies it to the lender-attorney's relationship with the purchaser-borrower and the seller. The Committee read Rule 1.06 to set no lower standard than former DR 5-105(C), with even more specific full-disclosure requirements. The duty to give an unrepresented seller written notice that the attorney represents only the lender reflects the concern addressed by ABA Model Rule 4.3 (dealing with an unrepresented person).

Citations and references

Rules of Professional Conduct:

• MR 1.7 (conflict of interest: current clients)
• MR 4.3 (dealing with unrepresented persons)
• Texas Disciplinary Rule 1.06; former DR 5-105(C)

Other opinions cited:

• Tex. Ethics Op. 150 (May 1957): lender may require its chosen firm to prepare loan papers; did not reach preparing documents for the seller without consent
• Tex. Ethics Op. 228 (April 1959): lender may select counsel for loan documents, but deeds and curative papers should be prepared by counsel selected by the seller or purchaser-borrower
• Tex. Ethics Op. 408 (Jan. 1984): dual representation in a multi-party real estate transaction requires full disclosure and consent
• Tex. Ethics Op. 448 (Sept. 11, 1987): attorney may not represent both seller and buyer by preparing conveyance and security instruments without personal contact, full disclosure, and consent

See also

• TX Ethics Op. 527: Departed Lawyers' New Firm Adverse to a Former Firm's Client
• TX Ethics Op. 528: Hiring a Lawyer Married Into an Opposing Party's Employee's Family
• TX Ethics Op. 530: County Commissioner Practicing Law in the County's Courts

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-525/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_525.pdf

Original opinion text

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

QUESTION PRESENTED

May an attorney who prepares loan documents for a real estate purchaser at the request of the attorney's lender-client prepare a deed to be used in the transaction if he is not requested to do so by the seller and without submitting a dual representation disclosure?

STATEMENT OF FACTS

An attorney represents a lender and drafts loan documents for residential loans to the lender's customers. The lender's loan commitment to its customer provides that the lender will have the loan documents (typically a note and deed of trust) prepared by the lender's attorneys and requires the lender's customer to pay for the loan documents.

When a purchase money loan is being made to the lender's customer, the loan may have to be additionally secured by a vendor's lien retained in a deed to the lender's customer (a purchaser) from a seller with whom the lender's attorney has no contact. In that case, the lender's attorney (without being requested by the seller to do so) prepares a warranty deed for execution by the seller to the purchaser and delivers it and the loan documents to the title company for closing. The attorney sometimes delivers a statement to be submitted to the seller for preparation of the deed. At other times, the attorney may not submit a statement but indicates to the title company the amount of his charge to the seller for preparation of the deed "if it is used."

The attorney (or lender) delivers to the lender's customer a written notice that the attorney represents only the lender in the transaction and does not undertake to represent or advise the lender's customer and that the lender's customer should obtain counsel or representation from another attorney.

Although the seller pays for the attorney's preparation of the deed (assuming it is used), the attorney has no contact with the seller and does not make any disclaimer of representation or dual representation disclosure to the seller.

QUESTIONS
Is the lender's attorney ethically prohibited from preparing a deed for execution by a seller and submitting a bill for payment by the seller without having been requested or authorized by the seller to prepare the deed for the seller and without giving the seller a notice disclaiming that he represents the seller?
Under the facts presented, may the lender's attorney prepare a deed for the seller if the seller requests or authorizes him to do so?
If the answer to the second question is "yes," is the lender's attorney to provide a full dual representation disclosure to the seller?

DISCUSSION

Some of the issues under consideration were the subject of Ethics Opinion 150, decided in May 1957, Ethics Opinion 228, decided in April 1959, Ethics Opinion 408, decided in January 1984, and Ethics Opinion 448, decided in September 1987.

Opinion 150 held that, notwithstanding a borrower's desire to use his own attorney, it was not improper for a lender to demand that all papers incidental to its loan transactions be prepared by a law firm of its choice even though one of the members of the attorney's law firm was an officer of the lender and the costs of preparation were charged as part of the transactions. Opinion 150 did not expressly consider the ethical issues related to the preparation of documents for the seller without the seller's consent.

Opinion 228 was based on former Canons 6, 24, and 32 in effect at the time of that opinion and affirmed the right of a lender to select its own attorneys and to require that its attorneys prepare the mortgage and promissory note in connection with a loan made by the bank, and stated that the attorneys selected by the lender may properly accept employment to prepare such loan documents. Opinion 228 stated that other papers, such as deeds and curative matter, should be prepared by the attorney selected by the borrower. (Although this opinion states that the deed and other papers should be prepared by the attorney selected by the borrower, we believe the real import of that statement is that the deed and any curative documents should be prepared by an attorney selected by the seller or purchaser-borrower, depending upon the agreement between them.)

Opinion 228 recognized that an attorney, after full disclosure of the facts to all parties, may properly represent both the buyer and seller of real estate if the parties agree thereto, but that an attorney for a buyer of real estate may not advise the seller he is representing the buyer and thus will prepare the deed of trust and promissory notes, and that he will prepare the deed for the seller either at buyer's or seller's expense according to their desires. Again, the import of this opinion is the seller or purchaser must be allowed to select the attorney to prepare the deed.

Ethics Opinion 408 also involved an attorney's dual representation of parties to a real estate transaction and held that an attorney may accept a portion of a title insurance premium in a multi-party real estate transaction, but that the attorney is required to fully disclose the possible adverse effects of multiple representation to each of the prospective clients and only proceed with such representation when each client has consented after such disclosure and it is obvious that the attorney can adequately represent each client's interest.

Opinion 448, dated Sept. 11, 1987, stated that an attorney could not ethically represent both parties to a real estate transaction (seller and buyer) by preparing instruments of conveyance and instruments of indebtedness and security without having any personal contact with such parties, particularly in the absence of full disclosure by the attorney of the possible effect of such dual representation on the exercise of his independent professional judgment on behalf of each, as well as the consent of each party (after such full disclosure is made) to such dual representation. Opinion 448 was decided after adoption of the Disciplinary Rules and cited Ethics Opinions 228 and 408 in support of its conclusion.

Former DR 5-105(C) was the "conflicts of interest" rule when Opinion 448 was decided and provided that (in some instances) "a lawyer may represent multiple clients if it is obvious that he can adequately represent the interests of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each."

Rule 1.06, Texas Disciplinary Rules of Professional Conduct, is the current conflict of interest rule and provides:
(a) A lawyer shall not represent opposing parties to the same litigation.
(b) In other situations and except to the extent permitted by paragraph (c), a lawyer shall not represent a person if the representation of that person:(1) involves a substantially related matter in which the person's interests are materially and directly adverse to the interests of another client of the lawyer or the lawyer's firm; or
(2) reasonably appears to be or becomes adversely limited by the lawyer's or law firm's responsibilities to another client or to a third person or by the lawyer's or law firm's own interests.

(c) A lawyer may represent a client in the circumstances described in (b) if:(1) the lawyer reasonably believes the representation of each client will no be materially affected; and
(2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.

The remainder of Rule 1.06 does not aid in answering the questions considered by this opinion.

Rule 1.06 sets no lower standard than did former DR 5-105(C). In fact, the nature of the "full disclosure" required under the current rule is even more specific than under the former disciplinary rule.

CONCLUSION

A lender's attorney may prepare loan documents at the request of the lender and be paid by the purchaser-borrower. A deed reserving a vendor's lien and transferring it to the lender could be a "loan document."

If the lender's attorney is representing only the lender, either the lender or the lender's attorney must fully advise the purchaser-borrower that the lender's attorney does not represent the purchaser-borrower and that the purchaser-borrower should obtain advice and representation by another attorney. In the absence of notice that the lender's attorney does not represent the purchaser-borrower, Rule 1.06 is applicable and the full disclosure required by that rule must be made to the purchaser-borrower.

Neither the lender nor its attorney can suggest to the seller that the seller allow the lender's attorney to represent the seller in the preparation of the deed.

If the seller requests or authorizes the lender's attorney to represent the seller in preparing a deed for execution by the seller, the lender's attorney may prepare the deed but in doing so will be engaged in the dual representation of the lender and the seller.

Before undertaking the joint representation of the seller and the lender, the lender's attorney must reasonably believe the representation of each client will not be materially affected, and must provide full dual representation disclosure to the seller and lender and obtain the consent of each after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.

A lender's attorney may not prepare a deed for use in a real estate transaction without having been requested or authorized to do so by the seller unless the attorney provides written notice to the seller that he has prepared the deed at the request of the lender, that he represents the lender and only the lender in the transaction, and that the seller is advised to consult his own legal counsel before signing the deed. If the lender's attorney knows that the seller has an attorney, lender's attorney must send the draft deed to that attorney. If the lender's attorney initially does not know but later learns that the seller is represented by an attorney, he should send a copy of the draft deed to the seller's attorney promptly after acquiring such knowledge.

Tex. Comm. On Professional Ethics, Op. 525 (1998)