Over a period of several years, a number of inquiries have been made to the Council centering around the role of the lawyer in the usual residential loan transaction. This opinion is intended to deal with these basic questions and has the effect of revoking all previous ethics opinions inconsistent with it.
For the purposes of this opinion, in the usual residential loan transaction, it is assumed that the basic terms of the loan (amount, security, interest rate, installments, and maturity, but not necessarily all of the provisions contained in a deed of trust or mortgage) have been agreed upon between the borrower and the lender and that the lawyer has no obligation to bargain for either party. It is not material whether the lawyer is engaged by the borrower or by the lender or, if he is engaged by both, who engaged him first. It is recognized, of course, that each principal to the transaction has the right to separate counsel if he so desires. It is assumed that the borrower pays the lawyer's fee.
In the usual residential loan transaction:
(a) A lawyer may ethically represent both the borrower and the lender.
(b) If the lawyer intends not to represent both the borrower and the lender, he shall give timely notice to the one he intends not to represent of this fact, so that the one not represented may secure separate and timely representation.
(c) If he does not give such notice, he shall be deemed to represent both the borrower and the lender.
(d) If he represents only the borrower, he may nevertheless ethically provide title and lien priority assurances required by the lender as a condition of the loan.
(e) He shall clearly state to his client(s), whether the borrower or the lender, or both, whom he represents and the general scope of his representation.
(f) If he does not represent both principals, and the one he does not represent retains another lawyer to represent him, both lawyers should fully cooperate with each other in serving the interests of their respective clients and in closing the loan promptly.
(g) If the lawyer represents both the borrower and the lender, he may be ethically barred from representing either one (without the consent of the other) if a controversy arises between the borrower and the lender before or during the loan closing or, if a controversy arises between the borrower and the lender relating to the loan, even after the closing.
The seller is frequently involved in the usual residential loan transaction, and the lawyer representing the borrower and the lender (or either), whether or not a loan is involved, may be called upon to prepare a deed from the seller. It is assumed that the basic terms of the sale transaction have been agreed upon between the seller and the buyer and that the lawyer has no obligation to bargain for either.
It is not unethical for a lawyer representing the borrower and the lender (or either) in the usual residential loan transaction to prepare a deed from the seller to the buyer, collect the purchase price for the seller, or draft other documents (such as a second deed of trust and note secured thereby) as may be necessary to complete the transaction between the seller and the buyer in accordance with their agreement, and charge the seller therefore.
A lender frequently requires title insurance. It is not unethical for the lawyer representing the borrower, the lender and the seller (or one or more of them) to provide the title insurer with an opinion on title sufficient to issue a mortgagee title insurance policy, the premium for which is normally paid by the borrower. Bearing in mind that a buyer-borrower is usually inexperienced in the purchase of real estate and the securing of loans thereon, any lawyer involved in the transaction, even though not representing£ the borrower, should be alert to inform the borrower of the availability of an owner's title insurance policy which is usually available to the borrower up to the amount of the loan at little or no expense to the borrower, and assist the borrower in obtaining an owner's title insurance policy.
A lawyer having a continuing professional relationship with any party to the usual residential transaction, whether the seller, the lender, or the borrower, should be particularly alert to determine in his own mind whether or not there is any obstacle to his loyal representation of other parties to the transaction, and if he finds that there is, or if there is any doubt in his mind about it, he should promptly decline to represent any other party to the transaction. In any event, the lawyer shall clearly state to his client(s), whether the seller, the lender, the borrower, or one or more of them, whom he represents and the general scope of his representation.