Ethics Opinion

Opinion No. 90-3

March 1990

Summary: In certain limited circumstances, a lawyer may represent a bank and close institutional mortgage loans when the borrower is also the lawyer's client provided the attorney has carefully reviewed the loan documents and found no apparent unresolved disqualifying conflicts between the interests of the borrower and the lender and if the attorney has obtained the informed consent of both borrower and lender after full disclosure. The committee believes that it is "obvious" that the attorney can adequately represent the interests of each in connection with such limited duties. The lawyer must stop the multiple representation if either party revokes consent, or it otherwise becomes clear during the multiple representation that the lawyer cannot adequately represent the interests of each party.

Facts: A client has already obtained a commitment for a mortgage loan from an institutional lender to finance the acquisition of residential real estate. The client now wishes a lawyer, who is an approved conveyancer for the bank that gave the commitment, to represent him in the real estate purchase transaction, including closing the bank loan. All of the loan documents are "standard forms." The lawyer is not authorized to vary any part of the documents. The lawyer's role in connection with the joint representation is to search the title; determine that the deed, mortgage and closing documents are properly drawn and executed; compute closing adjustments; record documents; assure discharge of liens of record; certify title to the lender and borrower and generally close the loan according to the bank's instructions.

Discussion: A lawyer shall not accept employment [DR 5-105(A)] or continue in multiple employment [DR 5-105(B)]
... [if] the exercise of his independent professional judgment will be or is likely to be adversely affected ... or it would be likely to involve him in representing differing interests ...
"Differing interests" are defined to include
... every interest that will adversely affect either the judgment or the loyalty of a lawyer to his client, whether it be a conflicting, inconsistent, diverse, or other interest.
The rule recognizes that multiple representation does have potential advantages and in some situations should be allowed. Therefore, DR 5-105(C) allows multiple representation if
... it is obvious that he can adequately represent the interest 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.
Multiple representation of a lender and borrower may give both clients economic and professional benefits. The borrower may enjoy reduced legal fees, representation by a lawyer with expertise in real estate and with familiarity with the borrower-client's purchase of real estate and the lender-client's policies and procedures. The lender-client may enjoy some of the same advantages and the additional advantage of attracting mortgage customers who insist upon representation by a particular lawyer.
The interest of the borrower and lender are most likely to be adverse with respect to the substantive content of the mortgage documents and commitment. Therefore, before agreeing to any joint representation, the lawyer should do the following: The lawyer should carefully review the loan documents and mortgage commitments to determine if there are any obvious conflicts or hidden potential for conflict between the lender's and borrower's interests. Examples of such conflicts or potential would be oppressive, ambiguous or unusual provisions in the loan documents or commitment.
The lawyer should also advise the borrower as to the important terms of the mortgage and note, including but not limited to grace periods, default, acceleration after default, application of fire insurance proceeds after a casualty loss to the mortgage principal, due on sale clauses, late charges and pre-payment penalties. The use of "standard forms," such as used in secondary market transactions or mandated by the Real Estate Settlement Procedures Act, 12 U.S.C. 2601, et seq. which the lawyer has reviewed for oppressive, ambiguous or unfair provisions, further reduces any potential for conflict because neither the lender nor the lawyer can vary the terms or form of the document.
The lawyer should also carefully advise the borrower regarding the contract that defines the lender's obligations to fund the mortgage loan (mortgage commitment), especially with respect to conditions imposed by the lender, such as requiring sale of other property owned by the borrower, payment of some or all of the borrower's outstanding indebtedness, verification of sources of borrower's funds and the like. If any condition is not satisfied (even through no fault of the borrower), the lender could refuse to close the loan, which might ultimately result in a forfeiture of prepaid costs and fees and any deposit given to the seller as earnest money. A clearly written, unambiguous, mortgage commitment that delineates the rights of the lender and borrower greatly reduces any risk of actual conflict.
Unless otherwise agreed, multiple representation waives the confidentiality obligation between the borrower and the lender, and both clients should be so advised. A lawyer who acquires knowledge about either client relevant to the transaction, such as uncertain financial condition or source of funds, misstatements, omissions or errors in the mortgage application or documents to be signed at closing, is required to disclose it to the other client.
It would appear that the potential for conflict at closing is minimal when the lawyer is responsible for the proper form and execution of the various documents, disbursement of funds and certification of good title. However, there may be occasions for disputes, such as those that arise over of the quality of the seller's title. In such a case, the buyer-borrower may be willing to accept the title where the lender is not. The potential for dispute in this area can be minimized by a provision in the purchase and sales agreement that seller will provide title acceptable to buyer's mortgage lender or that any questions as to title will be settled by reference to ascertainable standards, such as those of the Massachusetts Conveyancer's Association.
In most mortgage transactions the borrower is required to pay the lender's counsel fees even if the lawyer is not engaged in multiple representation. G.L. c.184, S17B requires lenders to disclose to prospective borrowers in the loan application that "(1) the responsibility of the attorney for the mortgagee is to protect the interests of the mortgagee:" and that ''(2) The mortgagor may, at his own expense, engage an attorney of his own selection to represent his own interests in the transaction." We do not interpret this statute to bar a lawyer from multiple representation of lender and borrower provided that required disclosures are made.
The present rule, DR 5-105(C), allows the client to waive potential conflicts, with informed consent, only after the lawyer has decided that it is "obvious he can adequately represent the interests of each." There is no satisfactory definition of "obvious" or "adequately" in the Disciplinary Rules. Since no particular facts are presented we simply state that the lawyer must exercise his or her best judgment in making the threshold decision before seeking consent of his clients.
The extent of the disclosure required for informed consent cannot be cast in any particular form. Caution suggests that it should be in writing even if the rules do not require it. The amount of disclosure depends on the lawyer's judgment regarding the sophistication of the client, the nature of the representation and potential for "real" or "perceived" conflict. The disclosure should include as a minimum a detailed explanation of any adverse effect of the multiple representation on the lawyer's independent judgment; any dilution of the lawyer's loyalty; any potential loss of the client-attorney privilege; specific dangers of conflict reasonably foreseeable in the context of the present representation; any special knowledge possessed by the lawyer regarding the benefits to be obtained by multiple representation; the likelihood that such benefits will in fact be obtained and whether or not one of the clients is the lawyer's "primary client" because of repetitive representations or the like.
In the event of a conflict or revocation of authority for multiple representation, the lawyer cannot represent either client. Each client would then have to retain other counsel at his own expense.

Permission to publish granted by the Board of Delegates on June 15, 1990. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.