Can the settlement attorney for a failed real estate closing buy the property himself?

Plain-English summary

The committee considered an attorney who was to have been the closing attorney for a real estate settlement that was never completed because the buyer defaulted. The seller declared the buyer in breach and reoffered the property, the loan was in default, the bank was threatening foreclosure, and the seller might bring a damages action against the buyer.

On those facts, the committee concluded the attorney may purchase the real estate without violating the Code of Professional Responsibility, as long as he is able to comply with DR 5-104, the provision on business dealings between a lawyer and a client.

Currency note

This opinion was issued in 1986, under Virginia's former Code of Professional Responsibility, before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. The committee note records that under current Rule 1.8(a), a lawyer may not enter into a business transaction with a client unless the client is given an opportunity to seek independent advice and there has been full disclosure and consent in writing. 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 Treat this page as historical context, not current guidance.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 closing attorney buy the property after a deal collapses?

A: Under this 1986 opinion, yes, provided the attorney complies with DR 5-104 governing business transactions with a client.

Q: What conditioned the committee's approval?

A: The committee's conclusion was expressly conditioned on the attorney's ability to comply with DR 5-104; it did not approve the purchase apart from that requirement.

Background and rules framework

The opinion applies the former Code's DR 5-104, on business dealings between a lawyer and a client where they have differing interests. The committee note maps the question onto current Virginia Rule 1.8(a) on business transactions with clients, corresponding to ABA Model Rule 1.8(a).

Citations and references

Rules of Professional Conduct:

• DR 5-104 (business dealings between lawyer and client) (former Code)
• Virginia Rule 1.8(a) / ABA Model Rule 1.8(a) (business transactions with clients)

See also

• VA LEO 814: A Lawyer's Personal Interest in the Litigation
• VA LEO 900: Disbursing Settlement Funds After Delivery of the Deed
• VA LEO 860: A Lawyer's Spouse as Opposing Counsel

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/0783.pdf

Original opinion text

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

LEGAL ETHICS OPINION 783

REAL ESTATE – CONFLICT OF
INTEREST.

A real estate settlement attorney was to have been the closing attorney for a settlement,
but the buyer defaulted on his obligation and the transaction was never settled. Seller
declared buyer to be in breach and reoffered the property for sale. The loan is in default
and the bank is threatening a foreclosure. Seller may subsequently bring an action against
the buyer for damages incurred in the breach. Considering the above facts, the
aforementioned attorney may purchase the real estate without violating the Virginia Code
of Professional Responsibility as long as said attorney is able to comply with the
provisions of DR:5-104. [DR:5-104]

Committee Opinion
April 22, 1986

Legal Ethics Committee Notes. – Under Rule 1.8(a), a lawyer may not enter into a
“business transaction” with a client unless the client is given an opportunity to seek
independent advice, and there has been full disclosure and consent in writing.