Conflict of Interest Rules Violations

Ethics; Conflict of Interest

The Wisconsin Board of Attorneys Professional Responsibility (BAPR) recently issued a private reprimand to an attorney who was acting both as a client's attorney and the client's mortgage broker. The client, who was nearing the due date of a balloon payment on her mortgage, consulted the attorney on her possible options for repaying the loan. After consulting the attorney, the client decided to refinance the mortgage using the attorney as the mortgage broker. The attorney failed to locate a conventional lender who would refinance the client's loan, and the woman failed to make her required balloon payment. The land contract vendors began foreclosure proceedings on the client's property. The client retained her attorney/mortgage broker's law office to represent her in the foreclosure proceedings.

During the foreclosure proceeding the attorney located an investor who was willing to loan the client funds for the purpose of refinancing the land contract. The terms of the refinancing loan were such that the attorney's broker's fee was contingent upon the closing of the loan. Without obtaining the client's written consent, the attorney acted as both her representative at the closing and as a mortgage broker during the closing. At the closing, the client expressed some uncertainty as to whether the new refinancing arrangement was in her best interest. The attorney informed her that she could take some time to think over the transaction, however, the attorney made it clear that a delay in executing the refinancing documents might result in the investor backing out.

The BAPR concluded that the attorney's conduct violated two conflict of interest rules: (1) SCR 20:1.7(b), the general conflict of interest rule, which provides, "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 to a third person, or by the lawyer's own interest . . ."; and (2) SCR 20:1.8(a), the conflict of interest rule that defines prohibited transactions, which provides, "A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessor, security or other pecuniary interest adverse to a client . . . ."

The BAPR also concluded that the attorney violated the provisions of SCR 20:1.8(a) by acting as both the client's mortgage broker and attorney in the foreclosure action. Additionally, the attorney violated SCR 20:1.7(b) by not obtaining the client's written consent to represent her at the closing of a loan that he had brokered, where the attorney's broker's fee was contingent upon the closing of the loan and where the client had expressed some reservations regarding the loan.

The BAPR's private reprimand was conditional upon the attorney's agreement not to serve as both attorney and mortgage broker for any past or future clients.

© ATG atgc0799vol23

Statute(s): 
SCR 20:1.7(b), SCR 20:1.8(a)
By: ATG Underwriting Department | Posted on: Thu, 07/01/1999 - 6:05pm