Ethics Hotline & Opinions

ETHICS DOCKET NO. 1989-65

MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 1989-65

Conflict of Interest; Lawyer taking assignment of Mortgage where property is subject to dispute for which Lawyer represents client/mortgagor

 

Your letter poses the following facts:

Client is the owner of real property encumbered by a first trust and second mortgage. Client becomes involved in a dispute with Contractor doing work on the real property, as a result of which arbitration proceedings involving a claim and counterclaim are initiated. Contractor also files a petition for mechanic's lien against the real property, which petition is stayed pending final resolution of the arbitration proceedings. Lawyer represents client in the arbitration and mechanic's lien proceedings.

During the pendency of the arbitration, the second mortgage goes into default and foreclosure proceedings are started. In order to save the real property from foreclosure, Lawyer loans Client the money to pay the second mortgage as security, which assignment is recorded.

All of the ethical obligations of Lawyer pursuant to Rule 1.8(a) of The Maryland Rules of Professional Conduct have been met, and you inquire as to whether Lawyer has acquired a proprietary interest in the cause of action or the subject matter of litigation prohibited by Rule 1.8(j).

The Committee is of the opinion that under the facts as described, Lawyer has acquired a proprietary interest in the subject matter of the litigation in violation of Rule 1.8(j). Although any lien that might be acquired by Contractor as a result of the arbitration and mechanic's lien proceedings would be junior to the second mortgage acquired by Lawyer, any action to enforce the lien still would affect Lawyer's security interests. For this reason, the Committee believes that there is a potential conflict that could affect Lawyer's independent thinking regarding the conduct of the arbitration and mechanic's lien proceedings. Moreover, under the facts described, the Committee believes -that the lending of the money for which the assignment of the mortgage was taken as security could have the appearance of providing financial assistance to a client in connection with pending or contemplated litigation in violation of Rule 1.8(e).

 

DISCLAIMER: Opinions of the Maryland State Bar Association (MSBA) Ethics Committee are an uncompensated service of the MSBA. This Committee’s opinions are not binding on the Maryland Court of Appeals, Maryland Attorney Grievance Commission, MSBA or this Committee. The reader is advised that subsequent judicial opinions, revisions to the rules of professional conduct, and future opinions of this Committee may render the Opinions stated herein outdated. As such, the Committee’s opinions are advisory only and neither the Committee nor the MSBA assumes any liability whatsoever with respect thereto. Accordingly, reliance upon the opinions of this Committee is solely at the risk of the user.