Lender Preparation of Closing Documents
Opinion rules that for the purposes of a real estate transaction, an attorney may, with proper notice to the borrower, represent only the lender, and that the lender may prepare the closing documents.
Editor's Note: This opinion was originally published as RPC 40 (Revised).
Lender A wishes to retain Attorney B to examine the title, render a title opinion, obtain title insurance, record documents and disburse funds at a real estate closing. Lender A will prepare all the necessary documents and states that it will hold Attorney B harmless for all errors in the closing documents. The borrower will be charged a document preparation fee by Lender A and will be notified that Attorney B represents only Lender A.
- Does Lender A engage in the unauthorized practice of law by preparing the closing documents and charging a fee for this service?
- Does Attorney B have a duty to notify the borrower of any problems Attorney B detects during the title search?
- May Lender A waive Attorney B's liability for errors in the closing documents on behalf of itself and the borrower?
- Lender A has a "primary" interest in the closing documents. Therefore, under the rule of State v. Pledger, 257 N.C. 634, 127 S.E.2d. 337 (1962), Lender A may draft these documents without engaging in the unauthorized practice of law.
- If Attorney B clearly explains to the borrower that he represents only Lender A and makes that disclosure far enough in advance of the closing that the borrower can procure his own counsel if he wishes, Attorney B will have no duty to notify the borrower of potential defects in the title. CPR 100. It is suggested that any such notice be written.
- Lender A may not "waive" Attorney B's liability for errors in the closing documents without the borrower's permission to do so. However, if Attorney B does not draft or review the documents and does not represent the borrower in any respect, it does not appear that Attorney B could be held responsible for errors in the closing documents.