Closing Attorney Does Not Represent Lender
Photo by Michael Mulligan
Today, the South Carolina Ethics Committee issued Ethics Advisory Opinion 09-07. The Committee addressed the issue of whether, in a routine residential closing, the closing attorney has an attorney-client relationship with the lender. The Committee said the attorney does not act as an attorney for the lender unless the lender is relying on the closing attorney for more than simply closing the transaction. Specifically, the Committee stated:
A ‘standard real estate closing’ means a residential real estate closing where Borrower has chosen and retained Lawyer and a sophisticated institutional Lender is providing financing evidenced by a loan package prepared in advance by the Lender and forwarded to the closing attorney for execution. While the Lawyer has an obligation to explain the documents proffered by Lender to the Borrower, Lender’s instructions that Lawyer ensure that its documents be properly executed does not, in and of itself, create an attorney-client relationship between Lender and Lawyer.
The Committee did note that the results would be different when the attorney has an ongoing business relationship with the lender. ”A business relationship,” the Committee stated, “does not exist when Lawyer is not employed or engaged by Lender, has not drafted Lender’s closing package, and has not provided a legal opinion to Lender on the quality or legitimacy of the documents contained in Lender’s closing package.”
Many attorneys have incorrectly concluded that a closing attorney acts as attorney for the lender, despite the fact that the overwhelming majority of lenders only view the closing attorney as a title agent. Furthermore, the opinion comports with the South Carolina Consumer Protection Code, which requires lenders to allow borrowers to choose their own attorney for the closing. See S.C. Code Ann. 37-10-102(a). To suggest that the closing attorney represents a lender who is forbidden by statute from choosing the closing attorney is illogical. More importantly, if a closing attorney were deemed to be an attorney for the lender, the attorney would be unfairly exposed to liability even though the lender has sole control over drafting and selecting closing documents for the borrower to sign. Accordingly, the Committee’s common-sense approach to this issue is a welcome development.
–Russ DeMott
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