Can a lawyer serve as the trustee in a deed-of-trust foreclosure while also representing the lender (beneficiary)?

Plain-English summary

Washington's 1965 nonjudicial foreclosure statute lets a third party hold title to the security property as "trustee," and the opinion notes that the legislature in 1975 deleted the bar on the beneficiary's agent serving as trustee. That raised the question the opinion addresses: when can a lawyer not serve as trustee? In Cox v. Helenius, the Washington Supreme Court set aside a foreclosure sale in part because the trustee, an attorney, also represented the beneficiary in a collateral lawsuit brought by the grantors.

The committee explained that, under the Rules of Professional Conduct, the grantor need not be treated as the lawyer-trustee's client; the grantor is a third party to whom the trustee owes a duty. RPC 1.7(b) governs the resulting conflict between the lawyer's duty to a client (the beneficiary) and a duty to a third person (the grantor). The trustee owes the grantor fiduciary duties: to act impartially, to take reasonable steps to avoid sacrificing the debtor's property, and to be able to postpone a sale for cause. Those duties mean a trustee sometimes must exercise independent judgment about whether to proceed with a sale.

Applying RPC 1.7(b), the committee said the threshold question is whether the trustee's duty to the grantor may materially limit the representation of the beneficiary; if so, the lawyer may continue only if the lawyer reasonably believes the representation will not be adversely affected and the beneficiary consents in writing. But where the facts require the trustee to exercise independent fiduciary judgment, for example when the grantor seeks a nonfrivolous delay of the sale and the beneficiary refuses, the lawyer cannot serve as both trustee and advocate, and the beneficiary's consent does not solve the problem. A court's involvement does not always remove the need for the trustee's independent judgment. A lawyer who represents neither the grantor nor the beneficiary may serve as trustee even when their demands conflict.

Currency note

This opinion was issued in 1986, before the 2006 revisions to the Washington 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 Treat this page as historical context, not current guidance.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 the same lawyer be the deed-of-trust trustee and the beneficiary's lawyer?

A: Sometimes. The committee said the lawyer may serve both roles only if the trustee's duty to the grantor does not materially limit the representation of the beneficiary, or if it might but the lawyer reasonably believes the representation will not be adversely affected and the beneficiary consents in writing.

Q: When can the lawyer not serve both roles even with the beneficiary's consent?

A: When the facts require the trustee to exercise independent fiduciary judgment, such as deciding whether to postpone a sale that the grantor reasonably asks to delay and the beneficiary opposes. The committee said a lawyer cannot act as both a discretion-exercising fiduciary and an advocate, and the beneficiary's consent does not cure that conflict.

Q: Does a pending court proceeding remove the conflict?

A: Not always. The committee said that where the court will decide the very question the trustee would otherwise have discretion over, the lawyer may be able to represent the beneficiary; but where the court rules only on default and not on whether the sale should be delayed for other reasons, the need for independent judgment can remain.

Q: Can a lawyer who represents neither side serve as trustee?

A: Yes. The committee said a lawyer-trustee who represents neither grantor nor beneficiary can serve and exercise the required independent judgment, even when their demands conflict.

Background and rules framework

The opinion applies RPC 1.7(b), Washington's rule on conflicts between a lawyer's duty to a client and duties to a third person or the lawyer's own interests (the analog of Model Rule 1.7). It builds on Cox v. Helenius, in which the Washington Supreme Court invoked the spirit of CPR DR 5-105(B), the former Code provision barring multiple employment likely to adversely affect a lawyer's independent professional judgment. The committee reframed the analysis under the Rules of Professional Conduct so that the grantor is treated as a third person to whom the trustee owes duties rather than as a client.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 (conflicts of interest)
• Washington RPC 1.7(b) (representation materially limited by duties to another client, a third person, or the lawyer's own interests)
• CPR DR 5-105(B) (former Washington Code of Professional Responsibility; cited by the court in Cox v. Helenius)

Statutes:

• Washington's deed-of-trust nonjudicial foreclosure statute (enacted 1965; the 1975 amendment deleting the bar on a beneficiary's agent serving as trustee), as described by the committee.

Cases:

• Cox v. Helenius, 103 Wn.2d 383, 693 P.2d 683 (Wash. 1985): the Washington Supreme Court set aside a deed-of-trust foreclosure sale in part because of the trustee's conflict of interest.

See also

• WSBA Ethics Op. 1021: closing lawyer engaged through a mortgage company
• WSBA Ethics Op. 1017: lawyer who is also a real estate broker

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=37

Original opinion text

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

Advisory Opinion: 926
Year Issued: 1986
RPC(s): RPC 1.7, 87-1
Subject: Trustee; deed of trust; client conflict; Cox v. Helenius. [Published Informal Opinion 87-1]

[Formerly published as Published Informal Opinion 87-1. All Informal Opinions are consolidated in this database.]

When the state of Washington in 1965 enacted a nonjudicial foreclosure alternative for real property security interests, it provided for the title to the property to be held by a third party given the common law title "trustee." The Act, while providing that "any attorney" admitted to practice in this state could serve as trustee, prohibited the beneficiary, or the beneficiary's employee, agent, or subsidiary, from acting as trustee. In 1975 the legislature deleted this prohibition. Implicitly this amendment created a question for lawyers: are there circumstances under which a lawyer cannot serve as trustee? This question was expressly raised in Cox v Helenius, 103 Wn.2d 383,693 P.2d 683 (1985), where the court set aside a deed of trust foreclosure sale, in part because of a conflict of interest on the part of the trustee. The trustee was an attorney who also represented the beneficiary in a collateral lawsuit commenced by the grantors who claimed offsets arising from the underlying transaction that exceeded the secured indebtedness. Acknowledging the 1975 amendments that allow an agent to serve as trustee, the court (at 390) stated: "[T]he statute may not allow attorneys to do that which the Code of Professional Responsibility prohibits. The spirit of CPR DR 5-105(B) would seem to condemn action of the nature that occurred here. Where an actual conflict of interest arises, the person serving as trustee and beneficiary should prevent a breach by transferring one role to another person."

The court cites the "spirit of" CPR DR 5-105(B) which prohibited multiple employment if independent professional judgment on behalf of a client is likely to be adversely affected by representation of another client. In citing this rule, the court suggested that to analyze whether a lawyer has an impermissible conflict, the grantor and beneficiary should both be viewed as clients of the trustee. With the adoption of the Rules of Professional Conduct, the grantor need not be viewed as a client of the lawyer-trustee in order to analyze the conflict issue. Rather, the grantor should be viewed as a third party to whom the lawyer-trustee owes a duty. Rule 1.7(b) addresses the conflict between duty to a client and duty to a third party: (b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless: (1) The lawyer reasonably believes the representation will not be adversely affected; and (2) The client consents in writing after consultation and a full disclosure of the material acts (following authorization from the other client to make such a disclosure).

In applying Rule 1.7(b) to a particular fact pattern, the initial question is, when is the rule triggered—under what acts may the representation of the beneficiary be materially limited by the trustee's duty to the grantor? If there may be a material limitation, then the lawyer must resolve a second question—- whether he or she reasonably believes the representation will not be adversely affected. The trustee, according to the Helenius decision, owes some duty as a fiduciary to the grantor; must act impartially between grantor and beneficiary; must take reasonable and appropriate steps to avoid sacrifice of the debtor's property and his interests; and can postpone a sale "for any cause he deems advantageous." These responsibilities on the part of the trustee mean that in some situations a trustee has discretionary authority and may need to exercise independent judgment in deciding whether to proceed with the sale.

In the deed of trust foreclosure context, where a particular trustee also represents the beneficiary, a conflict between grantor and beneficiary may trigger 1.7(b), and put the attorney-trustee in a position where the representation of the beneficiary may be materially limited. Thus, for example, if the grantor seeks but the beneficiary refuses to accede to a delay of the sale, the threshold may be crossed and the attorney-trustee can go forward with both responsibilities only if he or she reasonably believes the representation of beneficiary will not be adversely affected, and the beneficiary consents in writing. If, under the particular facts, the trustee must exercise independent judgment in deciding about how to proceed with the sale, then the lawyer-trustee cannot continue to serve both as trustee and as lawyer for the beneficiary. A lawyer cannot, consistent with the Rules of Professional Conduct, act as a fiduciary exercising discretion and as an advocate. In the words of RPC 1.7(b), it would not be reasonable for the lawyer-trustee to believe or she could exercise independent judgment while at the same time fulfilling all of the professional responsibilities to the client-beneficiary. Consent of the beneficiary, in such circumstances, does not solve the problem.

If, for example, the grantor makes no request for delay of the sale, there would not be a problem under RPC 1.7(b). On the other hand, if the grantor requests a delay which reasonably appears to the trustee to be nonfrivolous, but the beneficiary refuses to agree to a postponement, then a conflict may exist that under RPC 1.7(b) prevents the lawyer from going forward with both roles; the conflict cannot be solved by the beneficiary's consent to the continued representation by the lawyer-trustee of the beneficiary.

As Helenius makes clear, the fact that a court is involved does not necessarily mean that the trustee has no need to exercise independent judgment. Such judgment may not be called for in a bankruptcy where the grantor is represented and the bankruptcy judge will decide whether to lift the automatic stay. Depending upon the particular facts, the attorney-trustee may be able to represent the beneficiary in such circumstances because the focus of the court's decision will be on the very area where the trustee would otherwise have some discretion. The court will, in effect, make the trustee's decision. In every case, however, this may not be true. The focus may be on whether there is a default, and the court may not rule on whether, for some other reason, the sale should be delayed.

The lawyer-trustee who represents neither grantor nor beneficiary can serve as trustee, exercising the independent judgment required, even though the demand of the grantor and the instructions of the beneficiary conflict. The obligations of the Rules of Professional Conduct do not preclude a lawyer from serving as trustee in these circumstances.