Opinion #165. Disclosures Required in Real Estate Transaction Where Lawyer Represents Lender and Issues Title Policy

Issued by the Professional Ethics Commission

Date Issued: December 2, 1998


H & W contract to purchase a home. The purchase and sales agreement requires Seller to convey marketable title to H & W. H & W apply for financing with Bank. Bank’s mortgage consultant invites H & W to choose among several title companies and law firms to effectuate the loan closing. H & W choose AA Title Company, owned by Attorney A.

The closing takes place at AA Title Companies offices and A attends the closing. In advance of closing, A provides H & W with a written notice that he is representing the lender and that if they wish to do so they may obtain separate counsel. H & W do not retain separate counsel. At the closing, A asks H & W to sign a Notice of Availability of Owner’s Title Insurance Policy form, indicating whether they wish to purchase an Owner’s policy, in addition to the Loan policy that is required by the lender.


Question 1: If H & W ask A whether they should purchase an Owner’s policy, should A respond?

Question 2: If H & W affirmatively decline to purchase an Owner’s policy, is A obligated, prior to completing the closing, to give H & W a copy of the Schedule B (exceptions) to the Loan Policy ?

Question 3: Schedule B to the Loan Policy contains a non-standard exception, which should be examined and discussed by H & W with their lawyer. Is A obligated to call this to the attention of H & W ?

Question 4: H & W indicate that they wish to purchase an Owner’s policy. On Schedule B of both the Loan and Owner’s Policies there is an exception that, according to the Maine Bar Association’s Title Standards, impairs marketability of title to the real estate but, according to the standards for the secondary mortgage market, will not prevent the mortgage from being sold on the secondary market. Is A obligated to call this circumstance to the attention of H & W?


In the hypothetical posed here, A has informed H & W in advance of closing that his role is to represent the Lender; he has done so in writing. A has proffered to H & W the Notice of Availability of Owner’s Title Insurance Form. A has made his role clear to H & W.

Question 1

When H & W ask A whether they should purchase an Owner’s policy, A should take care in any response to avoid muddling what he has striven to make clear. If A wishes, A may politely decline to offer any advice. If A offers H & W any advice on this subject, he should disclose the fact of his non-representation and disclose his agency relationship with the title insurance carrier.

Question 2

If H & W have affirmatively declined the purchase of an Owner’s policy by signing the declination on the Notice of Availability of Owner’s Title Insurance Form, A, who has taken pains to make clear that he does not represent H & W, is not obligated to provide H & W with a copy of the Schedule B of the Loan policy, prior to completing the closing.

Question 3

In the event that Schedule B of the Loan policy contains a non-standard exception that ought to be examined by a lawyer representing H & W, A is not under any obligation to call this to the attention of H & W. A has made it clear in advance of closing that he is not representing H & W and that they should seek separate counsel if they need to. To impose upon A an obligation to give advice to H & W finds no basis in the Bar Rules. The Bar Rules establish a minimum standard of conduct for attorneys. An attorney may wish to make certain that all parties at a closing understand the consequences of their legal acts, but when gratuitously offering any advice, A should be cautious not to create confusion with respect to his role and professional obligations.

Question 4

Similarly, in an situation where H & W have chosen to go unrepresented, A is under no obligation to warn them of the divergent standards between the standards of marketability of title and the secondary market standards. A is free, however, to do so.

As a general comment, although A has made all of the correct disclosures to H & W, the risk remains that it may nonetheless appear to H&W that A’s participation in the transaction implies some degree of responsibility on A’s part to call a halt to the closing and, if necessary, to refer H & W to other counsel for appropriate advice. Because it is common to provide borrowers with copies of the loan policy or of Schedule B to the loan policy, an attorney must bear in mind the underlying policies of Bar Rule 3.6(i), which provides:

(i) Avoiding Misreliance. If a lawyer knows or should know that the lawyer’s advice or opinion may be communicated to a person other than the lawyer’s client, the lawyer shall take reasonable steps to prevent that person from believing that the lawyer represents that person’s interests as well as the interests of the client.

While this provision refers to situations in which the lawyer’s advice or opinion is communicated to a non-client, similar concerns would necessarily obtain where the matter communicated is in the form of a title insurance policy or its schedule, which is a derivative of the lawyer’s opinion. Under such circumstances a lawyer should not merely rely upon the initial disclosure of the identity of the lender as client, but should take reasonable other steps to avoid misreliance. Such other steps may include pointing out that while H and W ultimately bear the cost of A’s fees, these fees have been billed to A’s client, the Lender[1].


[1] This opinion relates only to obligations imposed by the Bar Rules. The Commission recognizes that there may be other obligations or responsibilities to H and W arising outside the Bar Rules, which may need to be borne in mind by an attorney in A’s position.

Enduring Ethics Opinion