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Bar News - May 17, 2013


Ethics Corner: Ethics Rules Apply to Foreclosure Work

Dear Ethics Committee: I am a newly admitted attorney and will be doing foreclosure work representing institutional lenders. I understand that New Hampshire is a non-judicial foreclosure state. Since the foreclosure process does not typically involve litigation, do the Rules of Professional Conduct still apply? If so, which ethics rules should I pay particular attention to during the foreclosure process?

The New Hampshire Rules of Professional Conduct apply to all activities of attorneys, regardless of whether there is a lawsuit. The fact that New Hampshire is a non-judicial foreclosure state has no impact on whether or not you must follow the Rules in your foreclosure work. That said, there are some Rules of which you will want to be particularly mindful.

As always, Rules 1.1 and 1.3 require competence and diligence in representing your client and remind you to think for yourself if pressured by your client to achieve fee and cost targets for a foreclosure.

Rule 1.2 sets minimum standards for determining the scope of representation and the allocation of authority between the client and the lawyer.

Rule 4.1 prohibits attorneys from making false or misleading statements to others. While this Rule generally does not impose an affirmative duty on attorneys to inform opposing parties of relevant facts, attorneys may be obliged to correct or retract a prior statement when they later learn the statement was not true.

Subject to exceptions relating to communicating with people in an organization, Rule 4.2 prohibits an attorney representing a foreclosure party from directly communicating with another represented party without the consent of that party’s attorney. In many cases, the owner of the property being foreclosed upon will be unrepresented.

Rule 4.3 concerns the attorney’s dealings with unrepresented property owners, as well as other unrepresented individuals, which may include bidders at the foreclosure sale, the auctioneer or other lenders. This Rule requires that, in dealing with any unrepresented person, you must make reasonable efforts to make sure that the unrepresented person knows that you are not neutral and that you do not represent the unrepresented person. This is especially important when dealing with unrepresented homeowners, since the foreclosure process is so often a very distressing and confusing time for people losing their homes.

Rule 4.4 sets out requirements for showing respect for the rights of third persons.

Any lawyer conducting a foreclosure should be aware of, and frequently revisit, Murphy v. Financial Development Corp., 126 N.H. 536 (1985). Murphy and subsequent state and federal cases reinforce the duties described above. While no particular disciplinary rules were mentioned in Murphy, this case specifically held that an attorney representing a lender must exercise good faith and due diligence over the course of the foreclosure sale process including advertising, conducting the sale, giving notice, as well as establishing an upset price that is reasonable under the circumstances.

Finally, you should keep in mind the Rules relating to conflicts of interest. Rule 1.7 regulates an attorney’s representation of a client with interests adverse to the interests of the lawyer or of another client of the lawyer. It may be unwise to represent multiple parties at a foreclosure (such as multiple prospective bidders), as this may involve a conflict of interest. Representation, and a lawyer-client relationship, can exist even when you are only providing a limited, one-time service to a party you do not think of as being your client while you are generally representing the interests of another client. For advice on conflicts of interest in real estate contexts, see Conflict of Interest in a Real Estate Transaction.

The Ethics Committee provides general guidance on the New Hampshire Rules of Professional Conduct and publishes brief commentaries in the New Hampshire Bar News. New Hampshire lawyers may contact the Committee for confidential and informal guidance on their own prospective conduct or to suggest topics for Ethics Corner commentaries by emailing Rose Atwood.

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