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Ethics Advisory Opinion 04-01

April 13, 2004

February 20, 2004

Facts
An out-of-state mortgage lender wants Attorney A to close real estate transactions in South Carolina. Attorney A’s client would be the lender. Attorney A would require verification in each closing that the paperwork was prepared under the supervision of an attorney licensed to practice in South Carolina.

Question
Do the Rules of Professional Conduct prohibit Attorney A from participating in a closing where Attorney A represents the lender and the closing documents were not prepared by Attorney A but were prepared by or under the supervision of an attorney licensed to practice in South Carolina?

Summary
No, the Rules of Professional Conduct do not prohibit Attorney A from participating in a closing where Attorney A represents the lender and the closing documents were not prepared by Attorney A but were prepared by or under the supervision of an attorney licensed to practice in South Carolina. However, Attorney A would be cautioned as to the potential risks that are possible in such situations.

Opinion
The Rules of Professional Conduct do not prohibit an attorney from participating in a closing where the attorney represents the lender and the closing documents are prepared by another attorney licensed to practice in South Carolina. However, attorneys should exercise caution in entering into such an agreement as there may be potential ethical risks involved in the proposed arrangement: conflict of interest and unauthorized practice of law. There may also be potential legal risks involved, including, but not limited to, attorney preference in real estate transactions and the risk of malpractice claims if the attorney drafting the documents made errors that the closing attorney knew or should have known. The Committee does not make any determination as to the legal risks associated with the proposed arrangement.

1. Conflict of Interest

Rule 1.7 (b) of the Rules of Professional Conduct states as follows:

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 after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.

In Doe v. McMaster, 355 S. C. 306, 585 S.E.2d 773 (2003), the Court indicated that Rule 1.7 was not applicable in the specific case at hand, but noted in a footnote that “These ethical concerns are only applicable when there is a business relationship between Lender and the attorney.” It appears from the facts presented that there would be a business relationship between the attorney and the lender in the proposed arrangement, thus calling into question the Supreme Court’s comment to ensure compliance with Rule 1.7.

Previous South Carolina Bar Ethics Advisory Opinions have discussed the possibility of the creation of the attorney-client relationship in real estate transactions and may prove helpful in clarifying the attorney’s duty. While it is possible to represent only one party in a real estate transaction, South Carolina Bar Ethics Advisory Opinion 02-16 suggested the following:

A lawyer may create an attorney-client relationship when the lawyer “volunteer[s] to provide a legal explanation of the various documents involved in settlement of” a loan and “affirmatively respond[s] to questions” of the client. Nelson v. Nationwide Mortgage Corp., 659 F. Supp. 611, 618 (D.D.C. 1987). In determining whether an attorney-client relationship is created, the key consideration is whether, under the circumstances, a prospective client would reasonably have relied upon the lawyer for legal advice. A lawyer’s subjective belief that no attorney-client relationship is created does not preclude the finding that such a relationship exists. South Carolina Bar Ethics Adv. Op. No. 02-16.

See also South Carolina Bar Ethics Adv. Op. No. 00-17, which states as follows:

A lawyer may ethically represent only the seller at closing provided the lawyer complies with the requirements of Rule 4.3 (Dealing with Unrepresented Person). The rule states: In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.

2. Unauthorized Practice of Law

Rule 5.5 (b) of the Rules of Professional Conduct states “A lawyer shall not assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law.”

From the facts presented, all legal documents would be prepared by an attorney licensed to practice in South Carolina and thus may not constitute the unauthorized practice of law; however, the Committee declines to make any determination as to what constitutes the practice of law. In State v. Buyers Service Co., Inc., 292 S.C. 426, 357 S.E.2d 15 (1987), the South Carolina Supreme Court held that the title search, preparation of loan documents, closing, and recording of the title and mortgage were considered the practice of law and should thus be performed by or under the supervision of a licensed attorney. Attorneys participating in the proposed arrangement should ensure that the completion of the title search, preparation of loan documents, and recording of the title and mortgage are conducted by or under the supervision of an attorney licensed to practice in South Carolina and are not performed in a manner as to attempt to circumvent the Supreme Court’s ruling in Buyers Service. See also In the Matter of Stephen M. Pstrak, Op. No. 25767 (S.C. Jan. 12, 2004).
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