MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2001-22
Propriety of Counsel for Lender to Act as Personal Representative of Debtor’s Estate.
You state the law firm of which you are a member represents various lenders under deeds of trust on realty in Maryland. You pose several ethical inquiries regarding the situation where the borrower (and sole surviving owner of the real estate subject to a deed of trust) dies, payments under the deed of trust become delinquent, and no estate is opened on behalf of the decedent borrower.
Because the Committee on Ethics does not issue opinions of legal issues, it will be assumed for purposes of your inquiry, as you state, that:
1. on the death of the borrower, his title passes to his personal representative; and
2. notice of foreclosure proceeding on the delinquent deed of trust must be given to the personal
representative; and
3. creditors of the borrower or any other person may apply to become the personal representative of the borrower.
FIRST, you inquire whether it is a violation of Rule 1.7 of the Maryland Lawyer’s Rules of Professional Conduct for one attorney of your firm to act as a Substitute Trustee in the foreclosure proceeding on the deed of trust and for another attorney of the same firm to represent the lender who applies to be personal representative.
Rule 1.10(a) of the Rules reads:
“While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so, by Rules 1.7, 1.8(c), 1.9, and 2.2.”
Therefore, an impermissible conflict of one attorney is imputed to all other attorneys in the same law firm.
Although, as previously stated, this Committee does not generally give legal advice, it would be crucial to point out that the person who opts to become a personal representative shoulders special duties and responsibilities.
In Hartlove v. The Maryland School for the Blind, 111 Md. App. 310, 681 A.2d 584 (1996) the Court of Special Appeals considered the role of a personal representative and discussed:
“A personal representative is a fiduciary. He is under a general duty to settle and distribute the estate of the decedent in accordance with the terms of the will and the estates of decedents law as expeditiously and with as little sacrifice of value as is reasonable under the circumstances. He shall use the authority conferred upon him by the estates of decedents law, by the terms of the will, by orders in proceedings to which he is a party, and by the equitable principles generally applicable to fiduciaries, fairly considering interests of all interested persons and creditors….”
“The personal representative’s office is in the nature of a trustee for the creditors, legatees and next-of-kin of the deceased, and he is required to preserve the property of the estate apart from his own, earmarked….”
“The personal representative has an obligation to protect and preserve the property entrusted to him…. In carrying out that obligation, he is required to act in good faith, and must perform his fiduciary duties with the same degree of care and diligence that would be exercised by a prudent person under similar circumstances in the management of his own affairs
“The standard of care required of a fiduciary includes:
1. The exercise of the care, skill and diligence of a reasonably prudent person dealing with his or her own property;
2. The exercise of good faith and loyalty to all the beneficiaries;
3. The lack of self-dealing;
4. The exercise of reasonable watchfulness over investments; and
5. The maintenance of full, accurate and precise records…..”
Rule 1.7(b) of the Rules of Professional Responsibility states:
“A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or a third person, or by the lawyer’s own interests unless:
1. the lawyer reasonably believes the representation will not be adversely affected; and
2. each client consents after consultation.”
In the first inquiry situation it is the lender who is in direct conflict with himself as personal representative, albeit by permission of a statute. The lawyer representing the lender as Substitute Trustee in foreclosure may be materially limited by the lawyer’s own interest to please the lender thereby keeping the client in other foreclosure proceedings for that client.
By seeking appointment as personal representative of borrower’s estate, the lender as creditor comes into direct conflict with the office of personal representative, which the statute permits. The lawyer representing the lender as personal representative may be materially limited by his own interest of keeping lender as a future client when advising the lender of his fiduciary duties and loyalties to estate beneficiaries. This situation can hardly be cured by consent of the lender because it is the beneficiaries to whom the lender owes the fiduciary duty of loyalty. Further, from the viewpoint of the attorney acting as Substitute Trustee, that attorney would be the opposing party against his client, the lender as personal representative.
An impermissible conflict in the first situation would to be avoided where the attorney acting as Substitute Trustee does not represent the lender who applies and/or acts as personal representative.
SECOND, you inquire if it is ethically permissible for lender’s attorney to act as Substitute Trustee in foreclosure and another attorney in that firm to apply and become personal representative of borrower’s estate. Here, under Rule 1.7(b), the attorney acting as personal representative may be materially limited by his fiduciary responsibilities to the third person beneficiaries of the estate. Becoming the personal representative is directly adverse to acting as Substitute Trustee and would be imputed to other attorneys in the lawyer’s firm by Rule 1. 10(a). Further, consent of the lender would have little meaning and the beneficiaries of the estate would not be clients of the lawyer acting as personal representative.
THIRD, you inquire whether the same attorney could ethically act as Substitute Trustee and personal representative of borrower’s estate. Rule 1.10(a) and the analysis in the second inquiry above indicates the attorney would not be able to overcome the prohibitions of Rule 1.7(b).
FOURTH, you inquire whether waivers of conflict or disclosure of the firms dual involvement with borrower’s heirs could cure any of the earlier situations presented. Rule 1.7(b) speaks to client consent after consultation. The heirs or beneficiaries of borrower’s estate are not clients and the fiduciary duties owed to them by the personal representative are imposed by law. Whether those duties can be waived is a legal question beyond the scope of this Committee.
FIFTH, you inquire whether the amount of equity in real property being foreclosed could be a material factor in determining whether an attorney representing a lender in foreclosure could also act as the personal representative of borrower’s estate. This Committee is of the opinion that the amount of equity in the reality being foreclosed nor the size of the borrower’s estate are in any way relevant to the applicability of Rule 1.7(b).
REFERENCES: Maryland Lawyers Rules of Professional Conduct, Rules 1.7, and 1. 10(a)
CASE LAW:
Hartlove v. The Maryland School for the Blind, 111 Md. App. 310, 681 A.2d 584 (1996)