Can one lawyer represent both the buyer/borrower and the lender in a real estate loan, especially if the lawyer is the lender's general or in-house counsel?

Plain-English summary

A firm that often represented both buyer and lender in real estate transactions asked four questions about the practice. Its policy was to disclose the potential conflict and get signed waivers; where it served as the lender's outside general corporate counsel, it told the buyer that in a conflict it would keep representing the lender and drop the buyer, and otherwise it told both parties it would drop both.

Starting from Rule 1.7, and drawing on Opinion 644 and Opinion 90-3, the committee stressed that disclosure for common representation must include the implications, advantages, and risks, and must be ongoing as facts arise, not just at the outset; multiple representation depends on the facts of each case. It then answered the four questions: (1) Where the firm is the lender's outside general corporate counsel and has told the buyer that loyalty will stay with the lender in a conflict, the firm may not represent the buyer, because it cannot reasonably believe the buyer's representation will not be adversely affected under Rule 1.7(b). (2) Without that general-counsel tie there is no absolute bar, but the firm must continuously monitor adequacy, withdraw from both if a conflict develops, and disclose up front the possible need to withdraw; it would be improper to later represent either party in a foreclosure or in bankruptcy involving the lender's security. (3) A lawyer who is an officer or in-house counsel for the lender is even more closely tied and is precluded from representing the buyer; a lawyer who is merely a shareholder or director is not disqualified but must disclose that fact and obtain consent under Rule 1.7(b).

On the fourth question, the committee concluded a lawyer may be retained by one person to perform legal services for another so long as independent professional judgment is not compromised, citing Rule 5.4(c). The lawyer must verify the lender's authority to retain the lawyer for the borrower, and remains bound by the duties of competence (Rule 1.1) and communication (Rules 1.4 and 1.5).

Currency note

This opinion was issued in 1991, before Illinois adopted the 2010 Illinois Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in May 2010 as generally consistent with the 2010 Rule 1.7 and its Comments [23] and [29-33], while cautioning that the specific standards referenced may differ from the 2010 Rules. 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 or requirement mentioned here.

Common questions

Q: Can one lawyer represent both the buyer and the lender in a real estate loan?

A: The opinion concluded there is no absolute bar, but the lawyer must obtain consent after disclosure, disclose on a continuing basis, and withdraw from both representations if a conflict arises that materially limits either.

Q: What if the lawyer is the lender's outside general corporate counsel?

A: The opinion concluded the lawyer may not also represent the buyer, because having told the buyer that loyalty stays with the lender, the lawyer cannot reasonably believe the buyer's representation will not be adversely affected under Rule 1.7(b).

Q: Does being an officer, in-house counsel, or director of the lender change the answer?

A: The opinion concluded an officer or in-house counsel for the lender is precluded from representing the buyer, while a mere shareholder or director is not disqualified but must disclose the relationship and obtain consent.

Q: Can the lender retain the lawyer to do work billed to the borrower?

A: The opinion concluded this is permissible under Rule 5.4(c) if the lawyer's independent judgment is not compromised and the lawyer verifies the lender's authority to retain counsel for the borrower, while meeting the duties of competence and communication.

Background and rules framework

The opinion applied Rule 1.7 (conflicts of interest, including 1.7(b) on materially limited representation) and Rule 1.9 (former-client conflicts in later foreclosure or bankruptcy) to the dual representation, Rule 5.4(c) (no interference with independent judgment by a payer) to the lender-pays arrangement, and Rules 1.1 and 1.4 (competence and communication) to the lawyer's duties when retained through an agent (Model Rules 1.1, 1.4, 1.7, 1.9, 5.4).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 (conflicts of interest) / Illinois Rule 1.7
• Model Rule 1.9 (duties to former clients) / Illinois Rule 1.9
• Model Rule 5.4 (professional independence) / Illinois Rule 5.4(c)
• Model Rule 1.1 (competence); Model Rule 1.4 (communication)

Other opinions cited:

• ISBA Opinion 644: no absolute bar to representing both lender and borrower in a mortgage loan; fact-specific.
• ISBA Opinion 90-3: disclosure for common representation must be ongoing.
• ISBA Opinions 86-15, 87-2, 88-5: related real estate and agent-retention conflicts.

See also

• ISBA Ethics Op. 90-26: Fee Entitlement After a Conflict Withdrawal
• ISBA Ethics Op. 99-07: Lawyer for Lender Paid by Borrower
• ISBA Ethics Op. 17-04: Representing Buyer and Seller in a Real Estate Deal

Source

• Landing page: https://www.isba.org/ethics/opinions/9031