95 N.J.L.J. 1145
                                        November 9, 1972

OPINION 243

Conflict of Interest
Representing Mortgagor and
Mortgagee Representing Vendor and Vendee

    An attorney asks this Committee what would constitute full disclosure of potential conflict of interest positions in which he might find himself if he represents, for example, the lender and borrower in a mortgage transaction or the purchaser and seller in a real estate transaction. The attorney has proposed forms of letters, of disclosure which might be written prior to embarking upon such representation, in an endeavor to apprise the prospective clients of the possible conflicts which might arise. Twelve possible conflict situations are suggested by the inquirer in a proposed form of letter. One might conceive of other possible situations. However, we believe that any such form letters would prove more confusing than helpful to an uninformed layman.
    In considering the problem, the bar has for guidance the Supreme Court's opinion in In re Kamp, 40 N.J. 588 (1963), in which, the Court cited the Canon of Professional Ethics, Canon 6 then part of our court rules, and pointed out that an attorney who primarily represented a vendor of realty as, well as the purchaser, without disclosing such fact to the purchaser, violated the canon. The Court stated that the fact that there had existed in that transaction no situation which cast doubt upon the advisability of the purchaser accepting title did not exculpate the attorney. At page 596, the Court pointed out that, where the same attorney represents the purchaser of real estate and also the party financing the transaction (such as a bank or savings and loan association), to the extent that both parties seek a marketable title there is no conflict of interest, but that a conflict might
arise concerning the terms of financing and, therefore, it was, the duty of the attorney to make clear to the purchaser the potential area of conflict.
    Canon 6 is now superseded by the Disciplinary Rules of the Code of Professional Responsibility adopted by our Supreme Court and now part of the Rules Governing the Courts of the State of New Jersey. DR 5-105(C) provides that a lawyer may represent multiple clients if he believes that he can adequately represent the interests of each and if each consents to the representation after full disclosure of the facts and of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each.
    It seems clear that there is a greater potential danger in the representation by an attorney of a buyer and a seller in a real estate transaction than there is in his representing a lender and a borrower. In the latter transaction, as noted in In re Kamp, supra, each side seeks a clear and marketable title and, therefore, there can be no conflict on that score. The attorney representing the lending institution is concerned that there be no possible cloud on the title and, hence, he is equally protecting both parties.
    With respect to the terms of the financing arrangement between the lending institution and the borrower - the inquirer concerns himself principally with this type of representation, although obviously the same situation might arise between a private lender and a borrower - the attorney rarely enters the picture until these are resolved and they generally are specifically set forth in a letter sent to the borrower by the lending institution. In re Kamp,
supra. The borrower is asked to sign a copy of the letter approving the terms and return it to the lending institution. The provisions of the mortgage and the note or bond will be in accordance with the commitment for the loan originally sent to the borrower.
    It is true that at this stage of the proceedings, where the borrower is represented by the lender's counsel, the latter, in drawing the mortgage and note or bonds could depart from the terms of the commitment to the detriment of the borrower, but this is an unlikely situation. Mortgagors are now given protection by statute against such things as being improperly charged without their consent for obtaining a loan, improper prepayment provisions, changes in interest rate, etc. N.J.S.A. 46:10A and 46:lOB. These statutes contain penal provisions. See, also, Federal Reserve Regulation Z, where, under certain circumstances, copies of mortgages, notes and other incitements evidencing indebtedness are required to be given to the borrower.