Legal Ethics Opinion No. 1436

Real Estate Representation--Conflict of Interest--Multiple
Representation: Lender's Attorney Advising Unrepresented Borrower

You have presented a hypothetical situation in which Bank A, a
state chartered bank and member of F.D.I.C., makes purchase money
loans and re-financing loans on residential property. You
indicate that loan officers of Bank A do not advise borrowers
that they need an attorney for the transaction nor are the
borrowers asked the name of their attorney.  Rather, borrowers
are told by the loan officers that "We will take care of
everything," or "We will send the papers to Attorney X, the
Bank's attorney," or "Attorney X handles these loans for us". 
Attorney X then prepares the loan documents, certifies title to
Bank A, bills the borrower and either sends the documents to the
borrower for signatures or advises the borrower of the date and
time to come to the law office for execution of the documents. 
Attorney X is the named trustee on the deed of trust.

You have asked the committee to opine on several questions
related to the facts of your inquiry:

     1.   If the attorney representing the lender does not
          represent the borrower and the borrower does not have
          his own attorney, is the lender's attorney  ethically 
          required to advise the borrower that he is, in fact,
          the lender's attorney and not the borrower's attorney,
          when, in spite of such representation, the borrower is
          being billed for the lender's attorney's services?

     2.   If the attorney representing the lender does not
          represent the borrower, and the borrower does not have
          his own attorney, is the lender's attorney required to
          advise the borrower that the borrower has a right to
          obtain his own attorney to represent his interest?

     3.   If the attorney representing the lender does not
          represent the borrower, and the borrower does not have
          his own attorney, is the lender's attorney ethically
          required to advise the borrower that the attorney has
          obtained title insurance for the lender only and that
          the title insurance does not apply to any of the
          borrower's equity, but that the borrower could obtain
          additional title insurance in borrower's name to
          protect such equity?

     4.   If the attorney representing the lender also represents
          the borrower, is the attorney ethically required to
          give a full disclosure of this multiple representation
          to the borrower so that the borrower has full knowledge
          of the potential conflict of interest and the
          possibility that the attorney could in the future, in
          his role as trustee, act in an adversarial role in the
          event of the borrower's default?

     5.   If the attorney representing the lender serves in any
          other capacity with the lending institution, other than
          lending attorney, such as serving on its board of
          directors, loan committee, or other committee, should
          that additional conflict of interest be disclosed to
          the borrower if the lender's attorney is representing
          both the lender and the borrower?

     6.   If the lending attorney represents the lender and the
          borrower and obtains title insurance for the lender, is
          the attorney ethically required to inform the borrower
          that the title insurance is only for the lender and
          that the borrower is not protected with insurance on
          equity in excess of the loan unless borrower obtains
          his own separate policy? 

The appropriate and controlling Disciplinary Rules relative to
your inquiry are DR 5-101(A), which provides that a lawyer shall
not accept employment if the exercise of his professional
judgment on behalf of his client may be affected by his own
financial, business, property, or personal interests, except with
the consent of his client after full and adequate disclosure
under the circumstances; DR 5-104(A), which prohibits a lawyer
from entering into a business transaction with a client if they
have differing interests therein and if the client expects the
lawyer to exercise his professional judgment therein for the
protection of the client, unless the client consents after full
disclosure, and provided that 
the transaction was not unconscionable, unfair or inequitable
when made; DR 7-103(A)(2), which states that during the course of
his representation of a client, a lawyer shall not give advice to
a person who is not represented by a lawyer, other than the
advice to secure counsel, if the interests of such person are or
have a reasonable possibility of being in conflict with the
interests of 
his client; and DR 7-103(B) which states that 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.

Disciplinary Rule 7-103(B) further states that 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.

The committee opines as to your questions as follows:

     1.   The committee has previously opined that a bank, like
          an individual, has the right to secure legal counsel of
          its choice to protect its interest, as well as the
          interest of the shareholders and customers.  See LEOs
          #ll20, ll5l.

          In the facts you present, however the committee opines
          that, if the attorney is engaged to represent the
          lender only, that fact should be communicated to the
          borrower, under the mandates of DRs 7-103(A)(2) and
          7-103(B), so that the borrower may exercise his right
          to independent counsel of his choice.

          Your remaining question regarding the legality of the
          bank's billing of the borrower for the lender's
          attorney's services, may be resolved by your attention
          to Va. Code 6.l-330.70 et seq., the interpretation of
          which is beyond the purview of this committee.

     2.   The borrower has the right to independent counsel to
          protect his interest in the transaction.  The committee
          is of the opinion that the Disciplinary Rules do not
          require the bank's attorney to advise the borrower of
          his right to obtain independent counsel.

     3.   Disciplinary Rule 7-103(A)(2) states that the only
          advice which can be given to an unrepresented opposing
          party is the advice to seek counsel. The committee
          opines, then, that where the attorney represents only
          the lender, that attorney is not required to advise the
          borrower that the title insurance obtained is for the
          lender only and that the borrower could obtain
          additional title insurance in borrower's name to
          protect his equity.

     4.   In response to your inquiry regarding disclosure of
          multiple representation when the attorney representing
          the lender also represents the borrower, the committee
          refers the inquirer to LEO #1153, which requires such
          disclosure.

     5.   With regard to your inquiry dealing with any obligation
          to disclose an additional conflict of interest to the
          borrower when the attorney who represents both the
          lender and the borrower serves in other capacities with
          the lending institution, e.g., serving on its
          board of directors, loan or other committee, the
          committee has previously opined that it is not per seimproper for an attorney to serve as counsel for a bank
          as well as being a member of its board of directors. 
          Thus, under the facts you present, the committee opines
          that if the attorney represents the lender and serves
          in another capacity for the lender, such as on its
          board of directors, loan committee, or other committee,
          full and adequate disclosure must be made, and consent
          received from, the borrower before the attorney may
          represent both borrower and lender.  See DR 5-l05(B).

     6.   As to your inquiry wherein the lending attorney
          represents the lender and the borrower but obtains
          title insurance only for the lender, the committee is
          of the opinion that the attorney must advise the
          borrower as to the nature, benefits and availability of
          title insurance.  See LEO #747.   

Committee Opinion
November 1, 1991