Servants of a masterful conflict.

• Author: Kaplan, Douglas C.
• Position: Buyer's attorneys' multiple tasks in real estate transactions

In a utopian world, a Florida real estate transaction would involve the following persons: 1) buyer and an attorney; 2) seller and an attorney (or seller may be unrepresented); 3) institutional mortgage lender's closing representative; and 4) title insurance agent who issues title commitments and policies to both lender and buyer.

Lamentably, we do not live in such a utopian world. In the real world of Florida real estate transactions, one attorney is often called upon to perform a number of these functions. It is common for the buyer's attorney to issue title insurance on behalf of the independent title insurance company for which he is a title agent. Often that same buyer's attorney also does the following:

1) Issues a title commitment to the institutional mortgage lender;

2) Assumes the responsibility of the receipt, proper completion, and execution of the lender's documents;

3) Distributes loan proceeds on behalf of his client (the buyer) and the lender, as the closing or settlement agent; and

4) Is asked to prepare the seller's closing documents.

The dynamics of the buyer's attorney's intertwined relationships are both awesome and troublesome. To fathom the complexity, those relationships must be separated with the care, precision, and experience of a military bomb-squad sapper disarming a boobytrap.

Servant of Whom?

The buyer's attorney's task is to provide good, marketable, and insurable title; to explain the loan documents (generally prepared by the lender) to the buyer; to counsel the buyer on the relevance, wisdom, and fairness of the documents; and to see to their proper execution by the buyer. The documents include detailed mortgage and promissory note terms and provisions; affidavits; identification and appropriateness of lender's charges to buyer; and, often, the right of access to buyer's IRS documents.

For whom does the attorney/title agent/settlement agent act as agent? Clearly, the attorney is agent for the buyer and is title agent for the title insurance company. However, in settling the transaction, securing the execution of the loan documents, and disbursing the funds, the settlement agent acts as agent (1) for the lender.

Quandaries Dancing the Three-step

What real estate lawyer has not faced a number of the following dilemmas?

1) Buyer is anxious to purchase property under "as is" contract, despite an inspection report which shows severe termite damage. Buyer's attorney is also closing agent for buyer's lender.

* What is the attorney's obligation to disclose to lender a matter that could seriously affect buyer's financing?

* Yet, in disclosing to lender, does the attorney violate the obligation of fidelity and confidentiality to the buyer/client?

2) Buyer agrees to a purchase price greater than seller's asking price. The consideration is the receipt of an inflated repair credit for the difference between the two sums at the time of closing. The underlying reason for the inflated purchase price is to accommodate a higher loan from the institutional lender facilitating the transaction.

* What is a buyer's attorney's obligation of disclosure to the lender, for which he is closing agent?

* Yet, to what extent would a disclosure to the lender affect the buyer's attorney's obligation of fidelity and confidentiality to the buyer/client?

3) The buyer discloses to buyer's attorney the fact that, between the time of the loan approval and the closing, the buyer has lost his job. This would obviously affect the lenders willingness to make the loan.

* To what extent does the attorney representing the buyer have an obligation to disclose that change of circumstances to the lender, for whom he is closing agent?

* Yet, in disclosing to the lender, does the attorney violate the obligation of fidelity and confidentiality to the buyer/client?

4) The buyer's attorney, at closing, becomes aware that cash funds are passing surreptitiously between the buyer and the seller.

* To what extent is the attorney obligated to abort the real property closing?

* To what extent is the attorney obliged to disclose that fact to the lender, for whom he is closing agent?

* Yet, what effect would such disclosure to the lender have upon attorney's obligation of fidelity and confidentiality to buyer/client?

5) The buyer wants to close on the residence he is purchasing, notwithstanding a slight title defect. Disclosure of the defect, or excepting the defect from the lender's title commitment, will defeat the financing.

* How does the buyer's attorney, who is also the agent for the title company and closing agent for the lender, accommodate responsibilities to all three principals?

6) At closing, buyer advises his attorney that he really does not intend to occupy the house that he is purchasing, even though the lender requires such occupancy as a condition of the loan.

* Does buyer's attorney, who is also closing agent for the lender, stop the closing and withdraw in the middle of the transaction? Does the attorney advise the lender of the communication? Or does that attorney simply do nothing?

* What effect would each response have on the attorney's obligations to the principals?

7) Buyer's attorney learns that one of the four units of a small apartment house is not licensed by the city. Buyer wants to purchase nevertheless. A three-unit building will not support a loan sufficient to close the transaction.

* Does the attorney for the buyer disclose this fact to the lender, for whom she is closing agent, and thus defeat her buyer/client's transaction?

8) Buyer's attorney provides to buyer a title insurance policy on a company for which that attorney writes as title agent. Comparable title insurance rates are not requested by buyer; nor are they offered by buyer's attorney (the title agent). The subject matter of that policy is a...