When a deed-of-trust foreclosure becomes contested, can the lawyer who is trustee, or his firm, also represent the foreclosing bank on appeal and in related suits?

Plain-English summary

A lawyer was trustee under a deed of trust securing a bank loan. The bank declared default and asked the trustee to foreclose. After notice and a hearing, the clerk found the statutory facts and ordered foreclosure; the borrower, appearing through counsel and denying both the deed of trust's validity and the default but offering no evidence, appealed to the Judge. The inquiry asked, across several scenarios, whether the lawyer-trustee or his firm could represent the bank or the trustee.

The opinion drew a consistent line. The lawyer-trustee or his firm may not represent the bank at the hearing before the Judge on appeal, may not represent the bank on a further appeal to the Court of Appeals, may not act for the bank in a separate civil suit seeking to enjoin foreclosure, and may not represent the bank in that injunction suit even if the foreclosure proceeding is voluntarily dismissed. In each of those situations the lawyer-trustee or his firm may instead represent the trustee. Finally, if the lawyer resigns as trustee, he or his firm may represent the bank in the suit seeking to enjoin foreclosure if the borrower and all endorsers or guarantors on the note consent.

Currency note

This opinion was issued in 1976 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 conflict-of-interest principles it applied correspond to today's Model Rule 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 Treat this page as historical context, not current guidance.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, deadline, or requirement mentioned here.

Common questions

Q: Can the lawyer-trustee represent the foreclosing bank on appeal?

A: No. The opinion concluded the lawyer-trustee or his firm may not represent the bank before the Judge on appeal or on further appeal to the Court of Appeals.

Q: Can the lawyer-trustee represent the trustee instead?

A: Yes. The opinion concluded that in each contested scenario the lawyer-trustee or his firm may represent the trustee.

Q: Could the lawyer ever represent the bank in the related litigation?

A: Yes, if he resigns as trustee. The opinion concluded he may represent the bank in the injunction suit if he resigns as trustee and the borrower and all endorsers or guarantors on the note consent.

Background and rules framework

The opinion applied the conflict-of-interest principles of the former Code of Professional Responsibility (corresponding to today's Model Rule 1.7), grounded in the trustee's duty of impartiality to both parties. The analysis turned on the incompatibility of serving as the foreclosure trustee while also advocating for the bank in a contested proceeding, a conflict that resignation plus consent could remove.

Citations and references

Rules of Professional Conduct:

• North Carolina Code of Professional Responsibility (conflicting representations; trustee impartiality)
• MR 1.7 (conflicts of interest)

See also

• NC Ethics Op. RPC 3: lawyer-trustee in a foreclosure
• NC Ethics Op. RPC 18: conflict in a derivative action

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/cpr-94/

Original opinion text

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

Inquiry:

A lawyer is trustee in a deed of trust conveying real estate as security for a loan made to a borrower by bank. The bank advises the trustee that the loan is in default and requests that the trustee institute foreclosure proceedings. The trustee gives notice in accordance with the statute and the hearing is held before the clerk. The trustee placed the original note and recorded deed of trust in evidence and an officer of the bank testified that the loan was in default. The borrower appeared through an attorney and denied the validity of the deed of trust and denied that a default had occurred but offered no evidence. The clerk found the facts required by statute and entered an order authorizing foreclosure and sale. The borrower gave notice of appeal to the Judge.

1. May the lawyer/trustee or a member of his firm ethically represent the bank at the hearing before the Judge on appeal?

Opinion: No.

May the lawyer/trustee or a member of his firm ethically represent the trustee on appeal?

Opinion: Yes.

2. If the Judge sustains the order of the clerk and there is an appeal to the Court of Appeals, may the lawyer/trustee or a member of his firm ethically represent the bank on appeal?

Opinion: No.

3. If a civil suit (as distinguished from these special foreclosure proceedings) is brought against the bank and the lawyer/trustee seeking to enjoin foreclosure and sale, can the lawyer/trustee or a member of his firm ethically act as lawyer for the bank in such litigation?

Opinion: No.

May the lawyer/trustee or a member of his firm ethically represent the lawyer/trustee in such litigation?

Opinion: Yes.

4. If the notice of sale and foreclosure proceedings is withdrawn and there is a voluntary dismissal of the special proceeding to foreclose, may the lawyer/trustee or a member of his firm ethically represent the bank in the suit seeking to enjoin foreclosure?

Opinion: No.

May the lawyer/trustee or a member of his firm ethically represent the trustee in such suit?

Opinion: Yes.

5. If the lawyer/trustee resigns as trustee, may he or a member of his firm ethically represent the bank in the suit seeking to enjoin if the borrower and all endorsers or guarantors on the note consent for him to do so?

Opinion: Yes.