Ethics opinion addresses appraisal waivers in mortgages

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There are circumstances when a closing attorney ethically may disclose that a waiver of an appraisal right in mortgage documents might be unenforceable, but whether the attorney has an obligation to do so is outside the realm of professional conduct.
So said the S.C. Bar’s Ethics Advisory Committee in a recent opinion.
Ethics Advisory Opinion 10-05, issued Oct. 11, considers a scenario in which a lender places a waiver of a right to appraisal on the wrong page of a mortgage document.
The scenario may arise fairly often because most lenders provide closing documents, including mortgage papers, and such waivers often appear on a page other than the one mandated by a state law. Under such circumstances, the waiver may be unenforceable because S.C. Code Ann. Sect. 29-3-68(b), requires it to be on the signature page, according to the ethics panel.
Whether an attorney must tell the parties, however, was a question the panel wouldn’t answer, although it did weigh in on whether the attorney may tell them.
“The question of whether a lawyer is obligated to disclose the potential deficiency is a standard of care issue and is outside the scope of this committee,” the panel said, adding that Rule 1.4 of the S.C. Rules of Professional Conduct didn’t apply.
Whether a closing attorney may disclose a waiver’s potential unenforceability depends on whether he represents the borrower only or both parties, the panel said.
If his client is the borrower only, he may disclose the defect. But if he represents both, “discovery of the defective waiver may generate a conflict in [the] lawyer’s representation of the parties to the closing,” the panel said.
Under Rule 1.7(a)(2), since the lawyer “is charged with advising lender as to its interests, and since lawyer’s discovery would be beneficial to borrower and detrimental to lender in future litigation, the conflict requires lawyer’s removal as counsel for both parties,” the panel said.
That was so, the panel added, because the parties would be directly adverse to each other if litigation over the transaction later arose.
“If the lawyer represents both the lender and the borrower in the closing and notifies either party of the defective waiver, he is essentially giving anticipatory legal advice to one client that is directly adverse to the other,” the panel said.

Other opinions
The panel also issued two other opinions, one dealing with billing for contract attorney services and the other answering the question of whether a lawyer can be a partner in more than one firm. Here are summaries of both:
Ethics Advisory Opinion 10-06. A lawyer who is a partner in a law firm ethically can serve as partner or of-counsel in another firm. However, “certain caveats” apply, the panel said in an Oct. 11 opinion.
For example, both firms have to be treated as one when it comes to conflicts of interests and imputed disqualification rules.
“Clients and former clients of each of the two firms must be considered clients and former clients, respectively, of the other firm for purposes of evaluating conflicts of interest,” the panel said.
Checking for conflicts means disclosing client information, which raises the need for “representation letters” to “inform clients and seek permission to disclose names and other necessary information to each firm for such conflict-checking purposes,” the panel said.
Ethics Advisory Opinion 10-08. A lawyer can add a surcharge when billing a client for the cost of services performed by a contract attorney, but only if the retainer agreement discloses the arrangement, the panel said in an Oct. 15 opinion.
“Whether and how the lawyer bills the client for the contract attorney’s services and what surcharges or profit may be added depends on which of … two scenarios is at work,” the panel said.
Under the first scenario, the hiring lawyer may so closely supervise the work that he adopts it as his own, associating the contact attorney with the firm. When that happens, the hiring lawyer may bill the “reasonable value” of the contract attorney’s work to the client as a legal fee and doesn’t have to disclose the amount to the client, the panel said.
In the second scenario, the contract attorney may work largely on his own and become directly responsible to the client “for his own diligence and competence,” the panel said. Then the hiring lawyer should bill fees for the contract attorney’s work as costs or expenses. However, the panel added that no surcharge would be appropriate “except where a reasonable surcharge has been disclosed to and approved by the client.”