ETHICAL CONSIDERATIONS AND MALPRACTICE PREVENTION IN A REAL, ESTATE PRACTICE, WRITTEN BY: Jennifer Knauth SCOTT, DOUGLASS & McCONNICO, L.L.P. 600 Congress Avenue, Suite 1500 Austin, Texas 78701-2589 (512) 495-6300 (512) 474-0731 Fax UNIVERSITY OF HOUSTON LAW FOUNDATION REAL ESTATE DOCUMENTS, WORKOUTS AND CLOSINGS March 25-26, 2004 — Houston s0ai6IL ML IV, Vi. 086 TABLE OF CONTENTS: SCOPE OF ARTICLE LAWYER AS AN ADVISOR.......- A. Conflicts of Interest. B. Dillard v. Broyles. Pe Ee oer C. TDRPC 1.06, Conflict of Interest: General Rule... LAWYER AS AN INTERMEDIARY... A. Role as an Intermediary... B. Rule 1.07—Conflict of Interest: Intermediary. C. Privilege Issues LAWYER AS A NEGOTIATOR. AL The Non-Client and Conflicts Considerations ..............-...000 B. Privilege Issues PRACTICAL CONSIDERATIONS. A. Engagement Letter/ Conflict Waiver Letters B, _ Non-Client Letters ... C. Maintaining Client Relations. CONCLUSIONSCOPE OF ARTICLE ‘The Texas Disciplinary Rules of Professional Conduct recognize the various functions of a lawyer: As a representative of clients, a lawyer performs various functions. As advisor, a lawyer provides a client with an informed understanding of the client’s legal rights and obligations and explains their practical implications. As advocate, a lawyer zealously asserts the client's position under the rules of the adversary system. As negotiator, a lawyer seeks a result advantageous to the client but consistent with requirements of honest dealing with others. As intermediary between clients, a lawyer seeks to reconcile their divergent interests as an advisor and, to @ limited extent, as a spokesperson for cach client. A lawyer acts as evaluator by examining a client's affairs and reporting them to the client or to others. TDRPC, Tex. Gov't Cope, Title 2, Subt. G, App. A, Art. X, Sec. 9, Preamble, (Vernon’s 1998 & Supp. 2004). ‘A lawyer may perform all of these functions, but a lawyer engaged in a real estate practice most often acts as an advisor, intermediary, and/or negotiator. See Jeb C. Sanford, Ethical, Statutory, and Regulatory Conflicts of Interest in Real Estate Transactions, 17 St. Mary’s LJ. 79, 80 (1985). This paper explores ethical considerations and malpractice prevention techniques for lawyers engaged in a real estate practice who primarily function in these roles. I, LAWYER AS AN ADVISOR A. — Conflicts of Interest One of the primary ethical considerations of an advisor of clients in a real estate practice is conflicts of interest. Conflicts of interest generally arise when a lawyer represents more than ‘one side in a real estate transaction. Some commentators suggest that itis imprudent for lawyers to represent more than one side to a real estate transaction and that such representation should be avoided. While avoiding ethical dilemmas requires diligence on the part of the lawyer, representing multiple clients in a real estate transaction is neither prohibited nor impossible. See Dillard v. Broyles, 633 S.W.2d 636 (Tex. App—Corpus Christi 1982, writ ref'd nre.); State Bar of Texas, Commission on Interpretation of the Code of Professional Responsibility, Opinion No. 228 (1959). Multiple representation is often more affordable for the parties and a more efficient manner of closing the transaction. See Dillard, 633 S.W.2d at 642. For these reasons, clients often desire joint representation in real estate matters. B. Dillard v. Broyles Dillard, decided under the former Code of Professional Responsibility, involved the purchase of residential real property, The attorney represented both the buyers and seller in the ‘transaction and was named trustee in the deed of trust. See id. at 639. ‘The buyers had no complaint about the attorney's handling of the original transaction. Id. at 642. The buyers failed 1 ons