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Ethics Advisory Opinion 05-14

April 13, 2005

South Carolina Bar Ethics Advisory Opinion 05-14

RULE 1.7(a)

Date: August 19, 2005

Facts:
A mortgage foreclosure attorney, when performing a title search in connection with the foreclosure, often finds other liens encumbering the property. It is not uncommon for those liens to be held by institutions that the attorney also represents in other foreclosures. In the past, the attorney has obtained separate conflict waivers for each file. That process has at times been lengthy. The clients are not inclined to give blanket waivers.

Question
Must a real estate attorney handling a mortgage foreclosure proceeding obtain a waiver or consent to a conflict of interest when a title examination reveals that clients that the attorney represents in other foreclosure proceedings also hold liens on the property?

Summary
Representation of a foreclosure client against lienholders that the attorney represents in other foreclosures involves “direct adversity” between current clients and requires their “consent after consultation” under Rule 1.7(a). The result would be the same under the revisions of the rules of professional conduct that go into effect on October 1, 2005, except that the new rules required “informed consent, confirmed in writing.”

Opinion
Rule 1.7(a) of the Rules of Professional Conduct dealing with conflicts of interest provides:

(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:

(1) The lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and

(2) Each client consents after consultation.

The rule is based on the lawyer’s duty of loyalty to a current client; it applies even if the matters are unrelated: “As a general proposition, loyalty to a client prohibits undertaking representation directly adverse to that client without that client's consent. Paragraph (a) expresses that general rule. Thus, a lawyer ordinarily may not act as advocate against a person the lawyer represents in some other matter, even if it is wholly unrelated.” Rule 1.7, cmt., Loyalty to Client. A later comment expresses the same concept in connection with litigation: “Ordinarily, a lawyer may not act as advocate against a client the lawyer represents in some other matter, even if the other matter is wholly unrelated.” The comment indicates that a lawyer may undertake such representation “if both clients consent upon consultation.” Rule 1.7, cmt. Conflicts in Litigation.

During its discussions, the Committee considered arguments that obtaining consent from the lienholders was time consuming and increased the cost of foreclosures. Lawyers can and should counsel their clients about such matters, see Rule 2.1, but ultimately, clients must decide whether they want to reserve the right to consent on a case-by-case basis, even if this right increases the cost of foreclosures, or agree to a blanket waiver or consent to avoid such costs. Although a waiver may be appropriate in many cases, the inquiry shows that at least some of the inquirer’s clients consider this matter to be of sufficient importance that they will not agree to blanket waivers, but instead insist on deciding whether to give consent on a case-by-case basis. The Committee also considered whether routine foreclosure proceedings in fact involved direct adversity or whether the adversity was a mere formality. In the Committee’s opinion, it may be difficult to determine whether a foreclosure proceeding is a mere formality or involves significant disputed issues. Moreover, policy questions about possible exceptions to the rules are for the Supreme Court, not this Committee to decide.

While this opinion is issued under the current rules of professional conduct, the analysis would be the same under the new rules that will go into effect on October 1, 2005. Rule 1.7(a)(1) and cmt. 6. The new rules will require clients to give “informed consent, confirmed in writing.” See Rule 1.7(a)(4).

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