Rutgers School of Law, OAL case ACPE195

94 N.J.L.J. 44
January 21, 1971

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the Supreme Court of New Jersey

OPINION 195

Conflict of Interest
Borrower's Attorney -
Opinion to Lender

    This inquiry is from a firm that regularly represents sellers and mortgagors in transactions wherein the firm is usually asked by the lender to:
    (1) Render an opinion that the actions of the corporate seller or of the corporate mortgagor have been taken in compliance with the New Jersey law; and,
    (2) that the loan documents are valid and enforceable under their terms pursuant to New Jersey law.
    The inquiry states:
        Is it proper for an attorney representing a borrower only to render an opinion to the lender who is not his client that the loan documents are enforceable?

    He points out that occasions arise when the borrower and the lender are in dispute; the borrower then seeks his attorney's advice on his liability under the loan documents in respect to certain conduct of the lender subsequent to closing. He points out that the borrower's attorney who has rendered such an opinion to the lender thereafter is precluded from being in an adversary position to the lender.

    The inquiry does not involve the buyer-seller-lender situations common in land development work. Compare what we said in our Opinion 51, 87 N.J.L.J. 705 (1964). And, as we said there, there is nothing objectionable in the common practice of representing both the purchaser-borrower and the lending institution where there is full disclosure and the parties consent.
    We note that many lending institutions accept closing documents prepared on behalf of the borrowers provided the legal sufficiency and form of such documents have been approved by counsel for the lenders. This practice avoids putting the borrower's attorney in possible future conflict. Each party relies on his own counsel; and counsel remain free to continue representation of the clients in future transactions arising out of the original subject matter. See our Opinion 94, 89 N.J.L.J. 333 (1966), where we held that the attorney for a borrower was precluded from later representing the lender in foreclosure against his former client.
    In the inquiry posed there is full disclosure and consent by the parties. While we do not encourage the practice, we do not find it objectionable for the borrower's attorney to render an opinion to the lender concerning the enforceability of his client's papers. It is clear, that to do so puts the attorney in an untenable position as to further controversies dealing with such documents. Thus, it would seem wise for attorneys to fully disclose these possible consequences in the initial stages of the transaction. On such information, the parties in their own self-interest, might well accept an attorney's refusal to represent both borrower and lender.

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