An opinion that addresses ethical pitfalls in contemporaneous residential real estate closings has been issued by the NC State Bar.
In 2021 Formal Ethics Opinion 1, approved at the State Bar Council’s quarterly meeting in April, the State Bar Council discusses conflicts of interest, communication, funding issues, and accountings in contemporaneous closings.
Here is the fact scenario for the opinion: Residential real property is owned by record owner A. The property is to be conveyed from record owner A to B and from B to end buyer C on the same day. The sales price for the A to B transaction is $80,000. The sales price for the B to C transaction is $100,000. The money provided by C would be utilized by B to make B’s purchase from A; B would provide no independent funding. One lawyer, Lawyer, would close both the A to B and B to C transactions. Lawyer would represent B and C; Lawyer would not represent A. Lawyer would be the settlement agent for the closings.
Here is the inquiry: Can Lawyer represent B and C in these transactions?
In its ruling, the State Bar said the scenario presents a concurrent conflict of interest, and that Lawyer’s representation of C may be materially limited by Lawyer’s responsibilities to B, and vice versa. Nonetheless, a lawyer can represent a client notwithstanding the existence of a concurrent conflict of interest under certain conditions, including that “the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client.”
Following are key excerpts from the opinion.
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2021 Formal Ethics Opinion 1
Overcoming a concurrent conflict of interest. “This scenario presents a concurrent conflict of interest under Rule 1.7(a). Lawyer’s representation of C may be materially limited by Lawyer’s responsibilities to B, and vice versa. See Rule 1.7(a)(2); 2013 FEO 4; 97 FEO 8; RPC 210. Rule 1.7(b) articulates the circumstances under which a lawyer may represent a client notwithstanding the existence of a concurrent conflict of interest. One requirement is that the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client. Rule 1.7(b)(1).”
Assessing whether a representation burdened by a concurrent conflict of interest might be permissible. “The lawyer must consider ‘whether there is any obstacle to the loyal representation of both parties.’ 97 FEO 8, quoting RPC 210. As discussed in 2013 FEO 4 in the context of joint representation of a buyer and a seller in a residential real estate transaction: [T]he lawyer has a duty to ensure that he can comply with Rule 1.7 prior to accepting joint representation of the buyer and seller. When contemplating joint representation, a lawyer must consider whether the interests of the parties will be adequately protected if they are permitted to give their informed consent to the representation, and whether an independent lawyer would advise the parties to consent to the conflict of interest. Representation is prohibited if the lawyer cannot reasonably conclude that he will be able to provide competent and diligent representation to all clients. See Rule 1.7, cmt. .”
Matters about which Lawyer would need to communicate with C include: “1. That B does not own the property and whether the contract entered into between B and C for the sale of the property is valid; 2. That C’s money will be used by B to purchase the property from A, for which C’s informed consent would need to be given (see Opinion #4 below); and 3. The price at which B is purchasing the property from A, which is a fact that may not otherwise be known by C and might bear upon the true market value of the property and/or whether C would consider it in C’s best interest to proceed. See, e.g., 97 FEO 8 and Opinion #4.”
Source: NC State Bar
Jay Reeves is author of The Most Powerful Attorney in the World. He practiced law in North Carolina and South Carolina. Now he writes and speaks at CLEs, keynotes and in-firm presentations on lawyer professionalism and well-being. He runs Your Law Life LLC, which offers confidential, one-on-one consultations to sharpen your firm’s mission and design an excellent Law Life. Contact firstname.lastname@example.org or 919-619-2441.