State Bar Ethics Opinions
July 14, 2005
Preparation of Deed When Representing Buyer in Closing
Opinion rules that the lawyer for the buyer of residential real estate may prepare the deed without creating a client-lawyer relationship with the seller provided the lawyer makes specific disclosures to the seller and clarifies her role for the seller.
Inquiry #1:
Attorney A represents Buyer for the purpose of closing on the purchase of residential real property. Seller is not represented by a lawyer. The purchase contract states that the property is to be conveyed by Seller to Buyer by a deed but the form of the deed may or may not be specified in the contract. If Attorney A prepares the deed as a part of her representation of Buyer, is it assumed that she also represents Seller?
Opinion #1:
No. Attorney A may prepare the deed as an accommodation to the needs of her client, the buyer, without becoming the lawyer for Seller. Prior to the execution of the deed by Seller, Attorney A must explain to Seller that her client is Buyer, that she does not represent Seller, and that she cannot give legal advice to Seller other than the advice to secure legal counsel. Rule 4.3(a). Furthermore, Attorney A must inform Seller that she will prepare the deed consistent with the specifications in the purchase agreement, if any, but, in the absence of such specifications, she will prepare a deed that will protect the interests of her client and, therefore, Seller may desire to seek legal advice. These disclosures avoid the risk of overreaching or misleading Seller. See Rule 8.4(c). To the extent that this opinion is contrary to CPR 100 or RPC 210 (Opinion #3), this opinion controls.
This situation is distinguishable from the situation addressed in 2002 FEO 8 which holds that a lawyer for a plaintiff may not prepare the answer to a complaint for an unrepresented adverse party to file pro se because the lawyer may not give legal advice to an unrepresented adverse party. An answer to a complaint, unlike a deed, is an adversarial document that sets forth the defendant's legal position without regard to the interests of the plaintiff. A deed, on the other hand, does not represent the unilateral interests of the seller because the buyer is the specific and intended beneficiary of the deed even though the buyer is not a signatory on the deed. Therefore, as long as the lawyer clarifies her role, makes the disclosures specified above, and does not give the seller legal advice, the lawyer may prepare the deed to further the interests of her client, the buyer. See, e.g., 2003 FEO 7 ("[T]he purpose and goals of the engagement determine the identity of the client, not the signatory on the document prepared by the lawyer.) Note, however, that preparing documents for the seller other than a deed may mislead the seller as to the lawyer's role and raise a presumption that the lawyer has duties to the seller. See, e.g., Cornelius v. Helms, 120 N.C. App. 172, 461 S. E. 2d 338 (1995), disc. rev. denied, 342 N.C. 653, 467 S. E. 2d 709 (1996).
Although the disclosures required by this opinion do not have to be in writing and the written consent of the seller is not required, it is the better practice for the closing lawyer to include the disclosures in a written statement that is provided to the seller prior to the seller's execution of the deed.
Inquiry #2:
If the legal fee for preparing the deed is allocated to Seller do the responses to the prior inquiries change?
Opinion #2:
No, provided Attorney A makes the disclosures required in Opinion #1 above and follows the requirements of Rule 1.8(f). Rule 1.8(f) permits a lawyer to accept compensation for a representation from someone other than the client provided the client gives informed consent, there is not interference with the lawyer's professional judgment or the client-lawyer relationship, and the confidentiality of client information is protected.
2002 Formal Ethics Opinion 9
January 24, 2003
Delegation to Nonlawyer Assistant of Certain Tasks Associated with a Residential Real Estate Transaction
Opinion rules that a nonlawyer assistant supervised by a lawyer may identify to the client who is a party to such a transaction the documents to be executed with respect to the transaction, direct the client as to the correct place on each document to sign, and handle the disbursement of proceeds for a residential real estate transaction, even though the supervising lawyer is not physically present.
The North Carolina State Bar was asked to reconsider Formal Ethics Opinions 2001-4 and 2001-8. These opinions, together with Formal Ethics Opinion 99-13, rule that competent legal practice requires the physical presence of the lawyer at the closing conference for both a purchase and a refinancing of residential real estate.
This opinion is issued after full consideration and investigation of the issues raised by the entities requesting the review. The opinion supersedes Formal Ethics Opinions 99-13, 2001-4, and 2001-8 to the extent that they are inconsistent with the conclusions expressed herein.
In connection with a residential real estate transaction, a lawyer is retained to ensure that the documents are properly executed and that the loan and sale proceeds are properly distributed, in addition to other services, if any, that the lawyer is retained to provide. May the lawyer assign to a nonlawyer assistant the tasks of presiding over the execution of the documents and the disbursement of the closing proceeds necessary to complete the transaction?
Opinion:
Yes. The lawyer may delegate the direction of the execution of the documents and disbursement of the closing proceeds to a nonlawyer who is supervised by the lawyer provided, however, the nonlawyer does not give legal advice to the parties.
As is the case with any task that a lawyer delegates to a nonlawyer, competent practice requires that the lawyer determine that delegation is appropriate after having evaluated the complexity of the transaction, the degree of difficulty of the particular task, the training and ability of the nonlawyer, the client's sophistication and expectations, and the course of dealings with the client. Rule 1.1 and Rule 5.3.
When and how to communicate with clients in connection with the execution of the closing documents and the disbursement of the proceeds are decisions that should be within the sound legal discretion of the individual lawyer.1 Therefore, the requirement of the physical presence of the lawyer at the execution of the documents, as promulgated in Formal Ethics Opinions 99-13, 2001-4, and 2001-8, is hereby withdrawn. A nonlawyer supervised by the lawyer may oversee the execution of the closing documents and the disbursement of the proceeds even though the lawyer is not physically present. Moreover, the execution of the documents and the disbursement of the proceeds may be accomplished by mail, by e-mail, by other electronic means, or by some other procedure that would not require the lawyer and the parties to be physically present at one place and time. Whatever procedure is chosen for the execution of the documents, the lawyer must provide competent representation and adequate supervision of any nonlawyer providing assistance. Rule 1.1, Rule 5.3, and Rule 5.5.
In considering this matter, the State Bar received strong evidence that it is in the best interest of the consumer (the borrower) for the lawyer to be physically present at the execution of the documents.2 This ethics opinion should not be interpreted as implying that the State Bar disagrees with that evidence.
1. It is already common for lawyers, exercising their sound legal discretion, to delegate to their nonlawyer assistants certain other tasks in connection with a residential real estate transaction, such as the search of the public records and the recording of documents.
2. Transcript of the investigatory meeting of the Special Committee on real estate Closings, June 7, 2002. The transcript of the evidence received at the meeting is available from the North Carolina State Bar upon request.
99 Formal Ethics Opinion 5
July 23, 1999
Obtaining Canceled Deed of Trust Following Residential Real Estate Closing
Opinion rules that whether the lawyer for a residential real estate closing must obtain the cancellation of record of a prior deed of trust depends upon the agreement of the parties.
Inquiry #1:
Attorney A engages in a high volume real estate practice. She routinely handles closing transactions in which existing mortgage loans are paid. Attorney A follows a procedure in which the payoff check is directed to the owner and holder of the note with a cover letter that directs the owner and holder to mark the original note and the deed of trust securing the note "paid and satisfied in full" and requests that the original papers be returned to Attorney A's office. Upon receipt of the "paid and satisfied"papers, Attorney A delivers the papers to the appropriate county registry for cancellation. Attorney A includes in the payoff letter a reference to N.C.G.S. 45-36.3(a)(1) which requires that "the holder of the evidence of the indebtedness" shall "within sixty days discharge and release of record such document and forward the document to the grantor, trustor, or mortgagor."
Lenders routinely fail to comply with their duty to return paid loan documents. Although Attorney A sends at least two reminder letters to lenders who fail to cooperate, she does not bring a lawsuit against lenders to enforce the return of the loan documents. Is Attorney A required by the Revised Rules of Professional Conduct to continue diligently to try to obtain the loan documents including bringing a civil action against a lender if necessary?
Opinion #1:
Although Rule 1.3 of the Revised Rules of Professional Conduct states that "a lawyer shall act with reasonable diligence and promptness in representing the client," whether there is a duty to obtain paid loan documents from a lender depends upon the lawyer's agreement with the new lender and the borrower. The lawyer's engagement letter, the lender's loan closing instructions, and the lawyer's representations to the clients establish the expectations of the clients. However, Rule 1.2(c) specifically permits a lawyer to limit the objectives of a representation with the client's consent. To avoid any misunderstanding, the lawyer must explain any limitations on her representation. Specifically, if she does not intend to obtain the cancellation of record of the paid deed of trust, she must so advise her clients.
Inquiry #2:
Does the procurement of an owner's title insurance policy relieve the lawyer of a duty to get the deed of trust canceled of record?
Opinion #2:
See opinion #1 above.
Inquiry #3:
If Attorney A collects a $25 "deed of trust cancellation fee," is she required to obtain the cancellation of the deed of trust before closing the file?
Opinion #3:
If a lawyer specifically charges for canceling the existing deed of trust on the property, the lawyer may not close the file until the deed of trust is canceled of record. The cancellation of the deed of trust should be pursued with reasonable diligence and promptness. See opinion #1 above.
Inquiry #4:
If Attorney A charges a "payoff processing fee," must she obtain the cancellation of record of the deed of trust before closing the file?
Opinion #4:
There is no practical distinction between a "deed of trust cancellation fee" and a "payoff processing fee." Regardless of what the fee is called, if a fee is charged, the client will expect the deed of trust to be canceled. See opinion #3 above.
Inquiry #5:
Is Attorney A required to disclose to the borrower that she will close the client's file after a certain period of time regardless of whether the prior deed of trust is canceled of record and that an uncancelled deed of trust may affect the marketability of title?
Opinion #5:
Attorney A must explain the limits of her representation sufficiently to allow the borrowers to make reasonably informed decisions about the representation. See opinion #1 above and Rule 1.4(b).
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