After a closing ends, can the closing attorney report a mortgage broker client's suspected fraud to the lender or law enforcement?

Plain-English summary

An attorney acted as the closing attorney in a real estate transaction in which every lender guideline was followed except the requirement that the property be a primary residence. After the closing, a call from the mortgage broker company's president aroused the attorney's suspicion and led him to suspect the broker had defrauded the lender. The attorney told the broker he would no longer act as closing attorney for the broker's transactions and asked whether he could now report the suspected fraud to the lender, law enforcement, the broker's employer or the lender for investigation, or the Department of Consumer Affairs.

The committee said the attorney may not contact any of those third parties. A lawyer may not reveal information relating to the representation of a client unless the client consents or an exception applies, and where only one attorney is present at a closing that attorney potentially represents multiple interests; assuming the closing attorney represented the broker, Rule 1.6 applies. The committee analyzed both exceptions in Rule 1.6(b). The first, Rule 1.6(b)(1), permits revealing information to prevent the client from committing a criminal act, which requires that the representation has not ended and that the fraudulent or criminal activity be discovered during the representation; it did not apply because the conduct had already occurred and disclosure would not prevent a future crime. The second, Rule 1.6(b)(2), permits disclosure to establish a claim or defense for the lawyer, respond to charges, or answer allegations about the representation, none of which the attorney was doing. The committee explained that if a lawyer discovers during the representation that his services will be used to further a crime or fraud, he must withdraw under Rule 1.16(a)(1), and after withdrawal may not disclose the client's confidences unless an exception applies. Because the attorney discovered the suspected fraud after the closing was complete and after he had ended the engagement, he could not disclose any information to a third party about the broker's activities.

Currency note

This opinion was issued in 1990, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. 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 a lawyer report a client's fraud discovered after the matter ends?

A: The committee said no, on these facts; Rule 1.6 barred disclosure to any third party because neither the future-crime exception nor the self-defense exception applied once the conduct had occurred and the representation had ended.

Q: When does the Rule 1.6(b)(1) criminal-act exception allow disclosure?

A: The committee said it requires that the representation has not ended and that the fraudulent or criminal activity be discovered during the representation, so the lawyer can act to prevent a future crime; it does not reach conduct that has already occurred.

Q: What must a closing attorney do on learning a client is using the closing to commit fraud?

A: The committee said the lawyer must withdraw under Rule 1.16(a)(1), and noted that during the representation the lawyer may reveal information to prevent the client from committing a crime, but after withdrawal may not disclose confidences absent an exception.

Background and rules framework

The opinion applies Rule 1.6 (confidentiality and its exceptions), Rule 1.2(d) (a lawyer may not assist client crime or fraud), and Rule 1.16(a)(1) (mandatory withdrawal), each corresponding to the like-numbered Model Rule. The committee made the timing of discovery (during versus after the representation) the dispositive factor for whether disclosure is permitted.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.6 / Model Rule 1.6: a lawyer shall not reveal information relating to the representation, subject to the criminal-act and self-defense exceptions in 1.6(b).
• South Carolina RPC 1.2(d) / Model Rule 1.2: a lawyer shall not assist a client in conduct the lawyer knows is criminal or fraudulent.
• South Carolina RPC 1.16(a)(1) / Model Rule 1.16: mandatory withdrawal where the representation would violate the rules or law.

See also

• SC Bar Ethics Op. 04-02: Reporting a Client's Crime
• SC Bar Ethics Op. 02-15: Duty to Report and Rule 1.6
• SC Bar Ethics Op. 90-38: Duty to Report a Lawyer

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-90-30/

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 90-30

Attorney A acted as the closing attorney in a real estate transaction. All required documents were properly executed and all guidelines provided by mortgage lender were followed except the requirement that the property was being purchased for use as a primary residence. Subsequent to the closing, Attorney A received a telephone call from the President of the Mortgage Broker's Company which aroused suspicion and caused Attorney A to investigate the possibility of fraudulent activities by the mortgage broker.

Attorney A believes that a fraud was perpetrated upon the lender. Attorney A has informed the mortgage broker that he will not act as the closing attorney for any transactions in which the mortgage broker is involved.

Questions:

1. May the closing attorney contact the mortgage lender to inform it that he feels a fraud may have been perpetrated on said mortgage lender?
2. May the closing attorney contact the appropriate law enforcement agencies in South Carolina and inform them that he feels a fraud has been perpetrated upon the mortgage lender?
3. May the closing attorney contact either the mortgage broker's employer or the mortgage lender itself and request that they make the appropriate inquiry and investigation?
4. May the closing attorney contact the Department of Consumer Affairs regarding the mortgage broker?

Summary:
Attorney A may not contact the mortgage lender, law enforce- ment officials or Consumer Affairs regarding the fraudulent activities of the mortgage broker.

Opinion:
An attorney is not allowed to reveal information
relating to the representation of a client unless the client consents or the disclosure is required in order to carry out the representation of the client. Since the exceptions to this general rule as stated in Rule 1.6(b) do not apply to Attorney A, he may not contact any third person relative to informing them of the mortgage broker's fraudulent activities.

If only one attorney is present at a real estate closing , that attorney potentially represents multiple interests. Assuming the closing attorney represents the mortgage broker, then Rule 1.6 applies.

The relationship between an attorney and his client is based upon the fundamental principal that all information communicated in confidence by the client or relating to the representation of a client is confidential. According to this principle, Rule 1.6(a) states that a lawyer shall not reveal information of client representation unless: 1) the client consents after consultation or 2) the client impliedly authorizes disclosure so the representation may be carried out. Rule 1.6(b)(1) and Rule 1.6(b)(2) create exceptions to the general rule by identifying two circumstances under which a lawyer may reveal information about his client.

The first exception to the general rule is that an attorney may reveal such information to the extent the attorney reasonably believes it is necessary to prevent the client from committing a criminal act. Rule 1.6(b)(1). This exception was created because an attorney is not permitted to counsel a client to engage in, or assist a client, in any conduct that the attorney knows is criminal or fraudulent. See Rule 1.2(d). Thus, in order to reveal the fraudulent and/or criminal acts of a client two requirements must be met: (1) the representation of the client has not ended; and (2) the fraudulent and/or criminal activity must be discovered during the course of representation. If these two requirements are met, the attorney has the discretion under Rule 1.6(b)(1) to reveal the information. A disclosure pursuant to Rule 1.6(b)(1); however, is limited and should be no greater than the attorney reasonably believes necessary to the purpose. (Comment Rule 1.6.) The exception created under Rule 1.6(b)(1) does not apply to the situation because the fraudulent and/or criminal act has already occurred. A disclosure of facts relating to his representation of the mortgage broker would not accomplish the purpose stated in the exception of preventing his client from committing a criminal act. Thus, Attorney A may not make disclosures to a third party based upon this exception.

The second exception created under Rule 1.6(b)(2) states that an attorney may reveal such information to the extent the attorney reasonably believes is necessary in the following situations: (1) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and client; (2) to establish a defense to criminal charges or civil claim against the lawyer based upon conduct in which the client was involved; or (3) to respond to allegations in any proceedings concerning the lawyers representation of the client. Since Attorney A is not attempting to use the information he acquired to establish a defense or claim on his behalf, this exception does not apply.

If the attorney discovers during the course of representation that his services will be used by the client in materially furthering a course of criminal or fraudulent conduct, the attorney must withdraw. Rule 1.16(a)(1), comment to Rule 1.6. After withdrawal, the attorney is not permitted to make disclosures of the client's confidences unless an exception to the general rule applies. Therefore, even though there is the possibility that the mortgage lender may engage in fraudulent activities in the future, the circumstances surrounding this transaction does not meet the requirements of Rule 1.6(b)(1) and Attorney A may not reveal information he subsequently discovered about the mortgage broker. Thus, Attorney A properly followed Rule 1.16(a)(1) and withdrew from his representation of the mortgage broker.

It should be noted, however, that if Attorney A learned that the mortgage broker was committing a fraud during the course of his representation, he would be required to withdraw from representing the mortgage broker and may reveal that information to prevent his client form committing a crime. Since Attorney A discovered this information after his representation was completed and after he had informed the mortgage broker that he would no longer represent him in a real estate closing, Attorney A may not disclose any information to any third party relative to the fraudulent activities of the mortgage broker.