Can a South Carolina lawyer who is also a licensed real estate agent and a mortgage broker act as mortgage broker, the buyer's real estate agent, and the closing attorney in the same transaction if the client consents in writing?

Plain-English summary

The inquiring lawyer is licensed to practice law in South Carolina, is a licensed real estate agent, and is an authorized mortgage broker. She asked whether she could act simultaneously as mortgage broker, the buyer's real estate agent, and the closing attorney, provided each affected client gives informed consent confirmed in writing.

The committee advised against the proposed conduct and noted it appears contrary to existing South Carolina Supreme Court jurisprudence. It analyzed the arrangement under Rule 1.7 (concurrent conflicts) and the Court's decisions on a lawyer's role in real estate closings. The committee explained that even without an attorney-client relationship with the lender, the lawyer's role as mortgage broker implies a business relationship with lenders, and under footnote 6 of Doe v. McMaster a business relationship between closing lawyer and lender creates a Rule 1.7 issue. Because the closing lawyer would also be the loan originator making referrals, that relationship is unavoidable here.

The committee acknowledged that, despite a concurrent conflict, a representation may proceed if all four requirements of Rule 1.7(b) are met, and that the Court has declined to make a per se rule barring dual representation in closings. But it concluded the first requirement, that the lawyer reasonably believe she can provide competent and diligent representation to each affected client, is the sticking point. The potential for the lawyer's judgment to be swayed is amplified by the commission a real estate agent earns on consummating the sale and the commission a mortgage broker earns on consummating the loan, both of which typically dwarf an attorney's closing fee, plus any fiduciary duties to the lender. Drawing on State v. Buyers Service Co., where the Court enjoined in-house title-company lawyers from closings because adverse interests made a proper professional posture extremely difficult, the committee reasoned that a lawyer acting as a party's broker or agent is even more intimately involved in the transaction, so the belief in competent, diligent representation "might be considered per se unreasonable."

The committee added that Rule 1.7(b) also requires the representation not be prohibited by law, a question outside its purview; it pointed to RESPA, Regulation X, TILA, other lending law, and state agent and broker regulations (and, if the lawyer also writes title insurance, whether she may serve in both roles). If any applicable law prohibits the multiple roles, the conduct is prohibited under Rule 1.7 regardless of consent. The lawyer must also obtain informed consent under Rule 1.0(f) from each person who is a client. The committee closed: if every Rule 1.7(b) requirement is met the conduct is permissible, but the competence-and-diligence belief might be per se unreasonable, and if other law prohibits the roles the conduct is prohibited and any remaining inquiry is moot.

In practice

Under this opinion, a lawyer who also holds real estate agent and mortgage broker licenses is advised not to combine those roles with serving as closing attorney in the same transaction. The committee held that the commission-based personal interest in closing the deal, which typically exceeds the attorney's fee, may make the lawyer's belief that she can competently and diligently represent each affected client per se unreasonable under Rule 1.7(b)(1). Client consent does not cure the problem if any applicable law (RESPA, Regulation X, TILA, or state agent and broker regulations) independently prohibits the multiple roles, because Rule 1.7(b)(2) requires that the representation not be prohibited by law. Where the lawyer does proceed, the committee held she must still evaluate which of the buyer, seller, and lender are clients and obtain each one's informed consent confirmed in writing under Rule 1.0(f).

Common questions

Q: Can a lawyer-broker close a deal in which she is also the buyer's agent and the mortgage broker?

A: The committee advised against it. It concluded that the lawyer's belief she can competently and diligently represent each affected client "might be considered per se unreasonable" because the agent and broker commissions create a strong personal interest in consummating the transaction.

Q: Does the buyer's written informed consent fix the conflict?

A: Not by itself. The committee held that all four Rule 1.7(b) requirements must be met, and that consent cannot satisfy the rule if the lawyer cannot reasonably believe she will provide competent and diligent representation, or if any other law prohibits the multiple roles.

Q: What other law does the committee point to?

A: It referenced RESPA, Regulation X, TILA, other state and federal lending law, and state real estate agent and broker regulations, and, if the lawyer also writes title insurance, whether she may serve as both title insurance agent and broker or agent. Those questions are outside the committee's purview, but a violation of any of them makes the conduct prohibited under Rule 1.7.

Q: Why does the lawyer's relationship with the lender matter if there is no attorney-client relationship with the lender?

A: The committee explained that under footnote 6 of Doe v. McMaster, a business relationship between closing lawyer and lender creates a Rule 1.7 issue even without an attorney-client relationship, and the lawyer's role as mortgage broker implies such a business relationship.

Background and rules framework

The opinion applies South Carolina Rule 1.7 (concurrent conflicts of interest), including the Rule 1.7(b) cure requirements, and Rule 1.0(f) (informed consent), which correspond to the like-numbered Model Rules. It reads those rules against the South Carolina Supreme Court's real estate closing jurisprudence, principally State v. Buyers Service Co. and Doe v. McMaster, which treat the closing lawyer as an independent attorney despite the inherent adversity among parties to a transaction.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / SC Rule 1.7(a), 1.7(b), 1.7(b)(1), 1.7(b)(2), 1.7(b)(4) (concurrent conflicts; cure requirements)
• MR 1.0 / SC Rule 1.0(f) (informed consent)

Statutes and regulations (referenced as bodies of law to check):

• RESPA; Regulation X; TILA; other state and federal lending law; South Carolina real estate agent and broker regulations

Cases:

• Doe v. McMaster, 355 S.C. 306, 585 S.E.2d 773 (2003), business relationship between closing lawyer and lender creates a Rule 1.7 issue (footnote 6, added after rehearing)
• State v. Buyers Service Co., 292 S.C. 426, 357 S.E.2d 15 (1987), adverse interests make it extremely difficult for an interested lawyer to maintain a proper professional posture toward each party

Other opinions cited:

• SC Ethics Advisory Opinion 06-11 (whether a closing lawyer has an attorney-client relationship with the lender is a case-by-case factual question)

See also

• SC Bar Ethics Op. 06-11: Seller-Only Mail-Away Closing
• SC Bar Ethics Op. 06-01: Closing Lawyer and the Lender
• SC Bar Ethics Op. 05-16: Real Estate Closing by Mail

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-07-01/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 07-01

SC Rules of Professional Conduct: 1.0(f); 1.7(a); 1.7(b)(1)

Facts
Lawyer is licensed to practice law in South Carolina, a licensed real estate agent, and an authorized mortgage broker.

Question
Can Lawyer act as mortgage broker, buyer's real estate agent, and closing attorney, so long as the client gives informed consent confirmed in writing?

Summary
The Committee advises against the proposed conduct and notes that it is apparently contrary to existing South Carolina Supreme Court jurisprudence. In particular, the Committee believes that a lawyer cannot satisfy the reasonableness requirement of Rule 1.7(b)(1). If each requirement of Rule 1.7(b) is met, the proposed conduct is permissible. However, a belief that Lawyer “will be able to provide competent and diligent representation to each affected client” might be considered per se unreasonable under the circumstances. If other law prohibits the multiple roles, the conduct is also ethically prohibited and any remaining inquiry is moot.

Opinion
Lawyer may have an impermissible conflict when acting as both closing lawyer and mortgage broker. Lawyer may also have an impermissible conflict when acting as closing lawyer and real estate agent for the buyer. These issues implicate both Rule 1.7 of the Rules of Professional Conduct (regarding concurrent conflicts of interest) and the South Carolina Supreme Court’s jurisprudence on lawyers’ unique responsibilities in real estate transactions. While the proposed activity might not offend the letter of the former, it likely offends the spirit of the latter.

Rule 1.7 states that “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.” Rule 1.7(a), RPC, Rule 407 SCACR. A “concurrent conflict” exists if “the representation of one client will be directly adverse to another client” or if “there is a significant risk that the representation of one … will be materially limited by the lawyer’s responsibilities to another client, … a third person or by a personal interest of the lawyer.” In this inquiry, Lawyer’s relationship with the lender is unclear and could vary from closing to closing. Whether a closing lawyer has an attorney-client relationship with the lender in a mortgage transaction is a factual question to be determined on a case-by-case basis. See EAO 06-11. Even without an attorney-client relationship, Lawyer’s responsibilities to the lender can create a conflict under Rule 1.7. The Court in McMaster stated that a business relationship between closing lawyer and lender creates a Rule 1.7 issue for the lawyer. Doe v. McMaster, 355 S.C. 306, 315, 585 S.E.2d 773, 777, at fn. 6 (2003) (Footnote 6 was added after rehearing.). Lawyer’s business relationship with the lender is undefined in this inquiry, but her role as mortgage broker implies some level of business relationship with lenders. Footnote 6 in McMaster does not specify a particular quality or quantity of relationship to create a conflict, so the broker-lender relationship likely creates a conflict even if one would not otherwise exist by virtue of an attorney-client relationship with the lender. To the extent the words “business relationship” in Footnote 6 may have been intended only to apply to a relationship involving the referral of legal business from the lender to the lawyer, such a relationship is unavoidable here because the closing lawyer is also the loan originator who would make such referrals.

Despite the concurrent conflict, a lawyer may undertake the representation if all four requirements of Rule 1.7(b) are met, three of which are at issue here: “(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; … and (4) each affected client gives informed consent, confirmed in writing.”1 Rule 1.7(b). The South Carolina Supreme Court has stated that adversity exists among parties to a real estate transaction, but has declined to make a per se rule barring dual representation in closings. See McMaster , 355 S.C. at 315, 585 S.E.2d at 778. Therefore, Lawyer can undertake the representation, but only if all the requirements of 1.7(b) are satisfied. This is so even when Lawyer is not also the mortgage broker or buyer’s real estate agent.

In order for the representation to be permissible under Rule 1.7(b), Lawyer must first reasonably believe that she can represent both the lender and the borrower competently and diligently despite the conflict. The potential for Lawyer’s judgment to be swayed from her duties to the borrower is amplified by several factors: 1) the pecuniary interest in consummating the transaction that is inherent in the role of a commissioned real estate agent and which, measured in dollars, typically dwarfs the pecuniary interest of a closing attorney in receiving a closing fee; 2) the pecuniary interest in consummating the transaction that is inherent in the role of a commissioned mortgage broker, which also typically dwarfs the average attorney’s fee; 3) any fiduciary responsibilities to the lender that arise from Lawyer’s relationship to that party, which is not clearly defined in the facts. The potential for Lawyer’s judgment to be swayed from her duties to the lender is also amplified by the pecuniary interests stated above and by Lawyer’s fiduciary responsibilities to the borrower arising out of that agency relationship. To the extent that Lawyer establishes an attorney-client relationship with the seller in sale transactions, the potential for her judgment to be swayed from her duties to the seller is amplified by all of the above.

Our Court has stated that, despite the inherent adversity between borrower and lender in a mortgage transaction, a closing lawyer may represent both parties. “Because real estate closings present a unique situation regarding dual representation we do not believe it to be in the public's interest to create a per se rule barring an attorney under the stipulated facts from representing Lender and borrower. Instead, Doe may participate in the closing after giving full disclosure of his role to both parties and obtaining consent from both parties to continue.” McMaster, 355 S.C. at 315, 585 S.E.2d at 778. While the court does not define this “unique situation,” the context and other language of that case suggest that it stems in part from the role of a lawyer as the settlement agent in a multi-party transaction that requires an independent third party to perform an escrow function, gathering documents, money and other contractual interests from multiple parties and later distributing them as appropriate. See Id., 355 S.C. at 314, 585 S.E.2d at 777 (distinguishing between an in-house title company lawyer and an “independent attorney” performing closing functions). The Court repeated the “independent attorney” theme throughout its analysis of a closing lawyer’s duties. When a lawyer undertakes to wear an agent’s hat on behalf of one of these two adverse parties, this independence may be destroyed to the point that she cannot reasonably believe in her ability to competently and diligently represent her client. Not only may the “buyers agent” hat unduly interfere with Lawyer’s duties to the lender, and vice versa, Lawyer’s own personal interests created by one or both agency relationships may unduly interfere with her duties to both parties and others.

In Buyers Service, the Court hinted at the problems inherent in such a scenario. After stating that title company lawyers cannot close loans because of the prohibition against the practice of law by corporations, the Court addressed the conflict of interest inherent in a lawyer-employee of an entity that is at least tangentially involved and interested in the transaction (the title company) closing the transaction as an ostensibly independent party. The court enjoined the title company employee-lawyers from performing real estate transactions both because of the corporation prohibition and because “the adverse interests in real estate transactions make it extremely difficult for the [in-house] attorney to maintain a proper professional posture toward each party.” State v. Buyers Service Co., 292 S.C. 426, 432, 357 S.E.2d 15, 18 (1987). Acting as a broker or agent of the lender or the borrower in a transaction seems to put the lawyer in a position even more intimately involved in the transaction than that of the title company lawyers in Buyers Service, creating an even more difficult situation than the one present in that case. If the Court believed that a lawyer’s status as title company employee would prohibit a proper professional posture because of adverse interests, it would likely find a lawyer’s status as a buyer’s or lender’s agent to be even more prohibitive.

Lawyer must also satisfy the Rule 1.7(b) requirement that acting as a mortgage broker or real estate agent in a transaction in which he is also the settlement agent does not violate any applicable law. While that question is beyond the Committee’s purview, reference should be made at least to RESPA, Regulation X, TILA, other state and federal lending law, and state real estate agent and broker regulations, as well as any other applicable body of state and federal law. If Lawyer also intends to write title insurance for the lender and borrower, as is common practice in South Carolina, the inquiries into other law should include whether Lawyer may serve both as title insurance agent and either mortgage broker or real estate agent. If any law would be violated by the purported activity, it is prohibited by Rule 1.7 regardless of client consent and Lawyer’s reasonable beliefs about competence and diligence.

Finally, Lawyer must obtain informed consent to the representation, consistent with Rule 1.0(f) governing such consent. Lawyer should evaluate individually whether the buyer, seller and lender are clients in the transaction, based on the law of formation of attorney-client relationships, and obtain the informed consent of each, confirmed in writing.

If each requirement of Rule 1.7(b) is met, the proposed conduct is permissible. However, a belief that Lawyer “will be able to provide competent and diligent representation to each affected client” might be considered per se unreasonable under the circumstances. If other law prohibits the multiple roles, the conduct is also ethically prohibited and any remaining inquiry is moot.

1The omitted requirement of Rule 1.7(b) is met because representation in a real estate transaction does not involve litigation or other proceeding before a tribunal.