When a foreclosure that started uncontested becomes contested at the hearing, what must the lawyer-trustee do, and can his firm or staff take a side?

Plain-English summary

Lawyer A was trustee in a deed of trust and started foreclosure proceedings that did not appear contested; at the hearing before the clerk, the other side appeared with an attorney to contest. The inquiry asked a series of questions about the lawyer-trustee's duties and his firm's role.

The opinion concluded: (1) the lawyer-trustee's duty at that point is to act as a fiduciary to preserve the interests of both parties and to perform legal duties that protect both (CPR 156); (2) no member of the lawyer-trustee's firm may represent the petitioning party as long as Lawyer A is the trustee, though if he resigns, he or a firm member could represent the petitioning party absent a conflict from a prior obligation to the opposing party (CPR 201), and if the trustee cannot represent either party in an advocacy role, neither may any firm member (DR 5-105(D)); (3) when the proceeding becomes adverse, the lawyer-trustee may generally do anything authorized by state law and the deed of trust that does not put him in an advocacy role, with the precise scope being a legal rather than ethics question; (4) the State Bar does not recommend whether an attorney should serve as a trustee, as that depends on the circumstances, including whether an adversarial situation is anticipated and whether the lawyer would wish to represent a party if one arose; and (5) a law firm secretary may not be the trustee while an attorney of the same firm represents the bank or savings and loan at the foreclosure, because the secretary is in a confidential relationship with the attorney and would receive confidential information, a role inconsistent with the trustee's required neutrality.

Currency note

This opinion was issued in 1979 under North Carolina's former Code of Professional Responsibility (the DR/EC framework), before the State Bar replaced the Code with the Rules of Professional Conduct (adopted 1985) and before the 2003 revisions to those Rules. The provisions it applied (conflict of interest and imputed disqualification under DR 5-105(D)) correspond to today's Model Rules 1.7 and 1.10. 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 Treat this page as historical context, not current guidance.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: What must the lawyer-trustee do when a foreclosure becomes contested?

A: The opinion concluded he must act as a neutral fiduciary, preserving the interests of both parties and performing duties that protect both (CPR 156).

Q: Can another lawyer in the trustee's firm represent the foreclosing party?

A: Not while he is trustee. The opinion concluded that as long as Lawyer A is trustee, no firm member may represent the petitioning party (DR 5-105(D)); after he resigns, a firm member could, absent a conflict.

Q: Can a firm's secretary be trustee while the firm's lawyer represents the lender?

A: No. The opinion concluded the secretary's confidential relationship with the attorney is inconsistent with the trustee's required neutrality.

Background and rules framework

The opinion applied the former Code's conflict-of-interest and imputed-disqualification provisions, including DR 5-105(D) (corresponding to today's Model Rules 1.7 and 1.10), building on CPR 156 and CPR 201. The analysis turned on the trustee's duty of neutrality and on confidences shared within a firm, which extend the trustee's disqualification to firm lawyers and to staff serving as trustee.

Citations and references

Rules of Professional Conduct:

• North Carolina DR 5-105(D) (Code of Professional Responsibility; imputed disqualification)
• MR 1.7 (conflicts of interest); MR 1.10 (imputation of conflicts)

Other opinions cited:

• North Carolina CPR 156 and CPR 201

See also

• NC Ethics Op. CPR 166: foreclosure trustee must stay neutral
• NC Ethics Op. CPR 201: resigned trustee representing the lender

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/cpr-220/

Original opinion text

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

Inquiry:

Lawyer A is a trustee in a deed of trust and institutes foreclosure proceedings. At the time he institutes the proceedings, they do not appear to be contested. At the hearing before the clerk, the other side appears with an attorney to contest the proceedings.

1. What is the duty of the lawyer/trustee at this time?

Opinion: The duty of the lawyer/trustee at this time is to act as a fiduciary to preserve the interests of both and to perform such legal duties as will protect the interests of both parties. See CPR 156.

2. May a member of the lawyer/trustee's firm represent the petitioning party?

Opinion: No, as long as lawyer A is the trustee. If the lawyer/ trustee resigned as trustee, either he or another member of his firm could represent the petitioning party as long as no conflict of interest existed because of some prior obligation to the opposing party. See CPR 201. If the trustee cannot represent either party in an advocacy role, no member of his firm may do so. DR 5-105 (D).

3. When the proceeding becomes adverse, what may the lawyer/trustee do at the proceeding?

Opinion: The role of the lawyer/trustee when the proceeding becomes adverse will vary with the circumstances. Generally, the lawyer/trustee may do anything at the proceeding which is authorized by State law and the deed of trust which does not put him in an advocacy role. To try to enumerate everything which the lawyer/trustee might do at the proceeding would put the State Bar in a position of giving a legal opinion rather than an ethics opinion.

4. Does the State Bar now recommend that an attorney should not serve as a trustee in a deed of trust?

Opinion: No. The State Bar does not recommend whether or not an attorney should serve as a trustee in a deed of trust. Whether or not an attorney should serve as a trustee in a deed of trust would depend upon the circumstances, such as whether or not he anticipates an adversarial situation and whether or not he would wish to represent one party in the event that an adversarial situation arose.

5. May a secretary of a law firm be a trustee and the attorney of the same law firm then represent a bank or savings and loan at foreclosure proceedings under the same deed of trust?

Opinion: No. The secretary is in a confidential relationship to the attorney and would receive confidential information communicated to the attorney in connection with the foreclosure proceedings. This role in the law firm of the attorney representing the bank or savings and loan institution is inconsistent with the neutral position which the trustee is obligated to assume.