Can a lawyer help close a property transfer that the client is structuring to avoid the lender's consent under a due-on-sale clause?

Plain-English summary

The Committee was asked whether an attorney may participate in consummating a real property conveyance where the client is attempting to avoid obtaining the original creditor's consent required under a "due on sale" clause. The Committee assumed there was no issue about the construction or validity of the clause itself.

The opinion applied DR 7-102(A)(7), under which a lawyer shall not counsel or assist a client in conduct the lawyer knows to be illegal or fraudulent, and discussed the parallel Model Rule 1.2(d), which bars assisting conduct the lawyer knows is criminal or fraudulent while allowing the lawyer to discuss legal consequences and to help the client make a good-faith effort to determine the law's validity, scope, meaning, or application. The opinion concluded the attorney must advise the client of the consequences of breaching the deed of trust.

The opinion concluded that the attorney's participation would, in essence, amount to concealing a breach of contract, and that this does not constitute illegal, criminal, or fraudulent conduct. Quoting Black's Law Dictionary's definition of fraud as an intentional perversion of truth to induce another to part with something of value or surrender a legal right, the opinion determined that circumventing a contract term under these circumstances is not fraud or fraudulent conduct, so the lawyer's participation is not barred.

Currency note

This opinion was issued in 1988, before the Alaska Bar Association's adoption of the 2009 revisions to the Alaska Rules of Professional Conduct (and before Alaska adopted the Rules of Professional Conduct at all; it applies the former Code of Professional Responsibility, though it discusses the then-current Model Rule 1.2(d)). 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 Treat this page as historical context, not current guidance.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: Is it fraud for a lawyer to help close a sale that dodges a due-on-sale clause?

A: The opinion concluded it is not fraud, because circumventing the contract term under these circumstances amounts to concealing a breach of contract, not an intentional perversion of truth to make another part with something of value.

Q: Can the lawyer assist the transaction at all?

A: The opinion concluded the lawyer may participate, because helping close the transfer is not illegal, criminal, or fraudulent conduct under DR 7-102(A)(7).

Q: Does the lawyer have to do anything before assisting?

A: Yes. The opinion concluded the lawyer must advise the client of the consequences of a breach of the provisions of the original deed of trust.

Background and rules framework

The opinion interpreted DR 7-102(A)(7) of the former Alaska Code of Professional Responsibility, the bar on counseling or assisting illegal or fraudulent conduct, alongside the parallel Model Rule 1.2(d). The analysis turned on whether avoiding a due-on-sale clause is "fraudulent," which the opinion answered by reference to the common-law definition of fraud, concluding the conduct was a breach of contract rather than fraud.

Citations and references

Rules of Professional Conduct (former Code; cf. Model Rules):

• DR 7-102(A)(7) (no counseling or assisting illegal or fraudulent conduct) (cf. Model Rule 1.2(d))

Other authorities:

• Black's Law Dictionary (5th ed.), definition of "fraud"

See also

• AK Bar Ethics Op. 96-2: Disclosing a Due-on-Sale Clause
• ABA Formal Op. 491: Avoiding Client Crime or Fraud
• ABA Formal Op. 463: Client Due Diligence

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/88-2.pdf

Original opinion text

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

ALASKA BAR ASSOCIATION
Ethics Opinion 88-2

RE:

May an attorney participate in consummating a real property
conveyance transaction where the client is attempting to avoid
obtaining consent required under a "due on sale clause" from the
original creditor?

In preparing the opinion the Committee has assumed that no issues
concerning the construction of the terms of the first deed of trust would
support a claim concerning the validity of the "due on sale" clause.

DR 7-102(A)(7) of the Code of Professional Responsibility provides that a
lawyer shall not". .. Counsel or assist his client in conduct that the lawyer
knows to be illegal or fraudulent." Rule 1.2(d) of the ABA Model Rules of
Professional Conduct provides that "A lawyer shall not counsel a client to
engage, or assist a client, in conduct that the lawyer knows is criminal or
fraudulent, but a lawyer may discuss the legal consequences of any proposed
course of conduct with a client and may counsel or assist a client to make a
good faith effort to determine the validity, scope, meaning or application of the
law."

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It is the opinion of the Committee that an attorney representing an owner
desiring to avoid the obligations of a due on sale clause must advise the client
of the consequences of a breach of the provisions of the original deed of trust.

In essence the attorney's participation would amount to concealing a
breach of contract. The lawyer's participation does not amount to illegal,
criminal or fraudulent conduct. "Fraud" is defined as "An intentional
perversion of truth for the purpose of inducing another in reliance upon it to
part with some valuable thing belonging to him or to surrender a legal right."
Black's Law Dictionary, Fifth Edition. The Model Rule, Rule 1.2(d), provides, as
noted above, that a lawyer not counsel a client to engage, nor assist a client, in
fraudulent conduct. Under the facts as presented to the Committee, it is the
Committee's opinion that circumventing a contract term under these
circumstances is not fraud nor fraudulent conduct.

Adopted by the Alaska Bar Association Ethics Committee on March 8,
1988.

APPROVED BY THE BOARD OF GOVERNORS: March 12, 1988

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