CPR 166

CPR 166

Several inquiries have been received that indicate a need to clarify CPR 94 and CPR 137 relating to the duties of the trustee in a foreclosure proceeding under G. S. Sec. 4521.16. CPR 94 ruled that the trustee as lawyer cannot ethically represent the lender at a hearing before the Judge on appeal from the Clerk, and this left the impression that he could ethically do so at the level of the Clerk. CPR 137 ruled that the trustee as lawyer cannot represent the lender at the hearing before the Clerk where the borrower challenges the default and the validity of the proceeding, and the apparent conflict with CPR 94 produced some speculation that the reason under these particular facts was a conflict of interest growing out of prior representation of the borrower.

Opinion: The proper rule is that the trustee/attorney cannot ethically represent either the lender or the borrower in a role of advocacy at any state of the foreclosure proceeding. The trustee in his fiduciary capacity is charged with the duty of preserving the interests of both, and in that sense he represents both. If, during the existence of the fiduciary relationship, he should act in an adversary capacity for either, he would violate his fiduciary duty to the owner, and this would offend the Code provision against conflict of interest.

The foreclosure statute, G. S. Sec. 45-21.16, does not alter this rule. It merely provides machinery by which the trustee puts the foreclosure process in motion. Upon receipt of a request from the lender/creditor the trustee serves upon each party a notice of hearing before the Clerk. In the absence of controversy the trustee may present, on behalf of the lender, the evidence necessary to support the Clerk's findings essential to a foreclosure order. If the proceeding becomes adversary, the trustee must assume a neutral posture consistent with his fiduciary duty to both parties. At no stage of the proceeding can the trustee ethically assume the role of an advocate for one against the other.

As long as the proceeding is not adversary, the trustee may ethically perform for the lender such routine legal services as determining the existence of intervening liens and other matters affecting the foreclosure. Even if the proceeding is adversary, he may ethically perform for himself such legal services as may affect the performance of his fiduciary duties.

Whether the trustee may ethically represent either party in post-foreclosure actions, such as ejectment, will depend upon whether or not a conflict of interest arises under the particular facts.