South Carolina Lawyer
SC Lawyer, March 2007, #4.
If It Walks Like a Duck . . .: Ethics Advisory Opinion 06-11 and the Attorney-Client Relationship in Real Estate Closings
South Carolina LawyerMarch 2007If It Walks Like a Duck . . .: Ethics Advisory Opinion 06-11 and the Attorney-Client Relationship in Real Estate ClosingsBy Michael J. VirziIn case you missed it during the holiday hustle and bustle, the Ethics Advisory Committee issued a thought-provoking opinion about residential real estate closings at the end of October. It is Opinion 06-11 available at www.scbar.org/member/opinion.asp?opinionID=639. More importantly, the committee corrected a seven-year-old mistake that held the potential to take an important consumer protection away from mortgage borrowers.
The inquiry asked a seemingly axiomatic question premised on two prior Ethics Advisory Opinions that addressed, respectively, whether a lawyer can conduct a mail-away closing of a residential real estate transaction and whether a lawyer can represent only the seller in a transaction when no other lawyer is involved. See Ethics Advisory Opinions 05-16 (2005) and 00-17 (2000). The committee answered "yes" to both prior questions, and this latest inquiry simply asked whether the two practices can be combined - that is, whether a lawyer can represent only the seller in a mail-away residential closing when no other lawyer is involved.
In a thorough, considered and overtly cautionary opinion, the committee half closed the door on lawyers' disavowing their relationships with buyers in residential real estate transactions and, in this author's opinion, quite rightly so. Neither the opinions nor this article addresses the propriety of such a disavowal in the commercial real estate context. In the inquiry, the issue is bifurcated into (1) whether the conduct is permissible in a cash transaction and (2) whether it is permissible in a transaction involving a mortgage loan. The inquiry asks two additional questions, not addressed here, involving out-of-state parties and conflict-of-interest waivers. The opinion recognizes significant differences between the mortgage and non-mortgage paradigms and suggests that the conduct is technically permissible in a cash transaction but not in a mortgage transaction.
Six years ago, the committee advised that a lawyer can disavow the attorney-client relationship with a buyer in a real estate transaction. SC EAO 00-17. Because the issue was not bifurcated in 00-17 by the inquirer, as it was this time around, that opinion does not separately reach this conclusion both when a mortgage is involved and when it is not. However, by discussing the lawyer's relationship with the lender, 00-17 clearly contemplates the existence of a mortgage. To the extent it opines that the attorney-client relationship with the buyer/borrower can be disavowed in a mortgage transaction, 06-11 comes to the opposite conclusion. It advises that the disavowal is only technically possible (and still subject to numerous cautions) in a cash transaction, but not possible at all when a mortgage is involved.
Ultimately, the issue before the committee, both six years ago and in October, was two-fold: how an attorney-client relationship is formed and whether it is possible to avoid forming one with a buyer in a residential real estate closing. In answering the first question, 06-11 weaves back through previous Ethics Advisory Opinions and civil cases, including 00-17, which references 99-13, which in turn references In re Morgan, 288 S.C. 401, 343 S.E.2d 29 (1986).
. . . and 99-13 begat 00-17 . . .
Morgan was a grievance proceeding involving a lawyer who had undertaken to negotiate and effectuate the sale a house on behalf of an existing client and his daughters, one of whom was a minor. When the daughters later objected to the deal the lawyer struck on their behalf, they refused to complete the sale and vacate the house. The lawyer then brought proceedings to evict them and their father and compel them to convey the property. The question of the lawyer's alleged misconduct turned in part on whether he had attorney-client relationships with the father and the minor daughter. The court not only held...