The Ethics of Joint Representation in Closings

In Massachusetts, a buyer’s attorney may represent both the buyer and the buyer’s lender (the bank) at closing. Typically, this benefits both clients, as the buyer’s legal fee is reduced and the attorney is familiar with the bank’s forms and practices. Yet the buyer may reasonably wonder whether the attorney is more concerned about the best interests bank instead of the buyer. While the majority of closings conducted by an attorney engaged in “joint representation” are successful and without conflict, a buyer should understand when joint representation is permitted, and the effect of joint representation on the attorney’s duty to the buyer.

The general rule is that an attorney may not represent clients with adverse interests. This rule is intuitive and prohibits, for instance, an attorney from representing both sides in court. In real estate, parties to an arms-length transaction (e.g. a home seller and a potential buyer) generally have adverse interests, even though they may share the same ultimate goal: the purchase and sale of a property. Simply put, the seller seeks to maximize the purchase price of the property, while the buyer seeks to minimize the same. An attorney attempting joint representation would quickly find that her duty to one client conflicts with her duty to the other.

It may seem, then, that an attorney would be prohibited from jointly representing both buyer and bank at closing. After all, the buyer and the bank have different and possibly adverse interests. The buyer wants good, clear and marketable title from the seller, and a loan to finance the purchase from the bank. The bank, in turn, wants to perfect its mortgage interest in the buyer’s title to secure repayment of its loan. In other words, the bank wants to ensure that it will be able to foreclose upon the property, if necessary, and that the value of the property will be sufficient to cover the balance of its loan to the buyer. So how is it that an attorney may ethically engage in joint representation of both buyer and bank?

As with most areas of the law, there are exceptions to the general rule. While an attorney generally may not represent both sides to a transaction, the ethics rules acknowledge that a an attorney “may seek to establish or to adjust a relationship between clients on an amicable and mutually advantageous basis.” Massachusetts Rules of Professional Conduct 1.7, comment 12. The rule recognizes that parties with potential conflicts may prefer to hire one lawyer to resolve their differences, or achieve their mutual goal, to avoid additional cost and complication. And it is this exception that permits a real estate attorney to jointly represent both buyer and bank under the theory that those parties, while in potential conflict, both seek a mutually advantageous goal. While buyer and bank may later oppose each other in a foreclosure action, both are generally aligned at closing in their goal of obtaining good, clear, and marketable title from the seller.

However, joint representation is only permitted after the attorney has made the buyer aware of how the joint representation will affect the attorney’s duty to the buyer. An attorney owes every client a duty of loyalty and confidentiality. The lawyer must explain that, during joint representation, she must be as loyal to the bank as she is to the buyer, and that no confidences will be kept among the parties. The time-honored attorney-client privilege will no longer exist between the buyer and attorney as far as the bank is concerned, and vice versa. After consultation, joint representation is only permitted with the express consent of each client. The buyer does not have to agree to allow the attorney to represent the bank at closing.     

Furthermore, the attorney can only undertake joint representation after first determining that no conflict exists between the buyer and the bank. The following example, although unusual, will highlight the possibility of a conflict between buyer and bank:

Buyer hires Attorney and provides a copy of Lender’s mortgage commitment letter. Buyer asks Attorney to jointly represent Buyer and Lender at closing, in which case Lender will pay Attorney’s legal fees. However, Lender’s commitment letter contains unusual terms, including oppressive prepayment penalties, and ambiguous language as to when Lender is obligated to fund the mortgage loan.

In this situation, Attorney knows prior to engaging in joint representation that Lender’s terms are highly unfavorable to Buyer, and that a conflict may erupt at closing if Lender is not obligated to fund the loan at that time. Attorney must counsel Buyer as to the risks involved in Lender’s terms. Thus, even if both Buyer and Lender consent to Attorney’s joint representation, it should be clear to Attorney that her representation of one party will adversely affect her representation of the other, and joint representation is therefor prohibited.

Anyone who has purchased a home with a mortgage loan from an institutional lender is acutely aware of the deluge of “standard forms” the lender requires the buyer to sign at the closing. While these forms may be burdensome, the standardization of closing documents has reduced the possibility of conflict between buyer and bank. Specifically, the federal and state consumer protection laws giving rise to these forms, as well as the secondary mortgage market’s demand for consistency, have eliminated much of the banks’ ability to vary the terms of any given “standard” mortgage. Consequently, an experienced buyer’s attorney, when presented with, for instance, a Bank of America commitment letter, can be fairly confident that the Bank of America mortgage and related documents will be similar, if not identical, to the many Bank of America mortgage loans that attorney has closed in the past. The attorney can easily assess the possibility for conflict and whether joint representation is permissible. 

Lastly, it should be noted that the Massachusetts Rules of Professional Conduct, which govern the conduct of Massachusetts lawyers, do not expressly authorize joint representation of buyer and lender at closing. Nevertheless, such representation has been commonplace for many years and has been previously endorsed, in limited circumstances, by the Massachusetts Bar Association under the previous Massachusetts Disciplinary Rules of Professional Conduct. See, MBA Ethics Opinion 90-3. While the current Rules, adopted in 1998, made some changes to the former rules, it appears fairly clear that the current Rules continue to permit joint representation.