Can a lawyer who represented a mortgage company only to obtain relief from the bankruptcy stay then buy the property at the later foreclosure sale?

Plain-English summary

An attorney represented a mortgage company solely to obtain relief from a bankruptcy stay so the company could resume foreclosure. The attorney did not act as trustee or counsel for the foreclosure or the sale, and the mortgage company had no opposition to the attorney purchasing the property at the public foreclosure sale.

The committee identified Rule 4-300, which prohibits a member from directly or indirectly purchasing property at a probate, foreclosure, receiver's, trustee's, or judicial sale in an action or proceeding in which the member, or an affiliated member, is an attorney for a party or acts as executor, trustee, administrator, guardian, or conservator. It identified that Rule 4-300 (effective May 27, 1989, continuing former Rule 8/5-103) prohibits purchasing where the attorney also appears as counsel for the party. The committee distinguished its Opinions 317 and 283, where the attorney participated in establishing the sale, preparing bidding rules, advertising, or had the client's information about value, creating conflicts. Here, because the attorney did not appear as attorney or trustee at the foreclosure sale and had no involvement in scheduling, advertising, or notifying buyers, and the bankruptcy action was not the "same action or proceeding," the committee concluded Rule 4-300 does not prohibit the purchase.

The committee identified that an attorney who participates in such a purchase where a client retains an interest does so fraught with peril, noting Marlowe v. State Bar placed the burden on the challenged attorney to prove the transaction was fair. It identified that Rules 3-300 (business transactions with clients; former Rule 5-101) and 3-310 (adverse interests) necessarily apply and require written informed consent before the sale. Accordingly, the mortgage company must give informed consent, and any information the attorney obtains about the property's value must be disclosed to the client so the client can give effective informed consent; confidential value information may not be passed to another client or used in bidding without the company's written consent.

Currency note

This opinion was issued in 1989, before California's November 1, 2018 adoption of the renumbered Rules of Professional Conduct. It interprets former Rules 4-300 (purchasing at a judicial sale), 3-300 (business transactions with clients), and 3-310 (adverse interests); Rules 3-300 and 3-310 correspond to current Rules 1.8 and 1.7. 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 mentioned here.

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Common questions

Q: Can a lawyer buy property at a foreclosure sale for a client they represented?

A: Per the opinion, yes, on these facts, where the attorney only obtained stay relief and did not appear as counsel or trustee at the sale, provided the mortgage company gives informed written consent.

Q: When is buying at a foreclosure sale prohibited?

A: Per the opinion, Rule 4-300 prohibits the purchase where the attorney is counsel for a party in the same action or proceeding, or participates in establishing or conducting the sale, as in the committee's Opinions 317 and 283.

Q: What must the lawyer disclose before buying?

A: Per the opinion, under Rules 3-300 and 3-310 the attorney must obtain the client's informed written consent and disclose any information about the property's value; confidential value information may not be used in bidding without the client's written consent.

Background and rules framework

The opinion interprets former California Rule 4-300 (purchasing at a probate, foreclosure, or judicial sale), former Rule 3-300 (business transactions with clients, corresponding to ABA Model Rule 1.8), and former Rule 3-310 (adverse interests, corresponding to Model Rule 1.7). It draws on the committee's Opinions 283 and 317 and on Marlowe v. State Bar.

Citations and references

Rules of Professional Conduct (former):

• California Rule 4-300 (purchasing at a judicial sale)
• California Rule 3-300 (business transactions with clients)
• California Rule 3-310 (adverse interests)

Cases:

• Marlowe v. State Bar, 63 Cal.2d 304 (1965)

Other opinions cited:

• LACBA Formal Opinions 283, 317

See also

• LACBA Ethics Op. 492: Security Interest in Real Property to Secure Fees
• LACBA Ethics Op. 462: Drafting a Will That Gives the Attorney a Gift
• LACBA Ethics Op. 496: Liens on Recovery in an Unrelated Case

Source

• Landing page: https://lacba.org/?pg=ethics-opinions
• Original PDF: https://lacba.org/docDownload/2010996