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Conflict of Interest With Real Estate Attorneys

by | Jan 29, 2020 | General Legal

Attorneys are required to keep your secrets. And so there are rules. And these are confidentiality rules. Basically, they say that if you tell anything to your attorney, they can’t tell it to anybody else, unless you authorize it.

Today, on this article, we’ll be talking about conflicts of interest. Now, I’m not going to go into a lot of the complexities of the rules. Those are for lawyers. Let’s just keep it simple. For ordinary people like you and me, even though I’m a lawyer, still, I need to put on my my regular person hat here, because it’s regular people that really have to understand when these rules kick into play. I will not be covering the conflict of interest rules related to government organizations, you know, to people who work for the government and the different arrangements they have for that. What I will be talking about is when a regular person hires an attorney, what kind of things does the attorney need to be on guard about?

So it basically flows from the idea that attorneys are required to keep your secrets. And so there are rules. And these are confidentiality rules. Basically, they say that if you tell anything to your attorney, they can’t tell it to anybody else, unless you authorize it. And this is behind what is called the attorney client privilege. That means that you can tell me all the secrets you have and I am barred from telling your secrets to anybody, unless you authorize it.

So if you say, Art, I don’t want you to tell this to the mediator in a mediation, or I don’t want you to tell this to the opposing party, or, or I don’t want you to tell this to anybody. And here it is. And then they say it, they tell me their darkest secrets. I can’t say anything to anyone as your attorney, I can’t even tell my spouse. I mean, my wife does not get to know these things. And, you know, it makes it a little difficult. I would love to be able to share things that concern me with my spouse. I mean, this is how a good marriage works. But I’m not allowed to do so. And it’s just a, you know, a burden of being an attorney. It’s just part of the license, you learn to keep secrets.

And when we keep secrets, the purpose of why attorneys keep your secrets is because we need to advise you if you’re getting into trouble. And we need to advise you on how to get out of trouble knowing the secrets that you’re carrying, so that we can properly advise you. You need to trust me that I am keeping those secrets. So that’s number one, I know the full story. And therefore, I can fully guide you and give you legal advice and counsel about how to make things right again, how to fix things, how to resolve problems. So this is kind of interesting.

And once we get through the confidentiality, then we get into an area of a conflict of interest and an attorney conflict of interest. We in our real estate practice, we do construction, contracts, real property, and we do water, okay? So for us, and in four different areas of the law, there will be different red flags, if you will, about when a conflict may arise. But here in the real property world, if I help, for example, a neighbor with a water rights issue, and then five years later, their neighbor comes to me, you know, you have neighbor Smith, who lives next to Jones. Smith comes to Macomber Law on a water-related issue. We help them with their well> We get everything straightened out, they’re all good. Then five or ten years later, Jones the neighbor of Smith comes to me and says, well, I have water problems. Well, there may be a conflict there, maybe not. And so this is something that the attorney has to measure. That they have to say, well, you know, can I still do a good job for this person? And on the face of it, you could say, well, surely you could. On the other hand, when somebody pumps water out of the ground on a well, it certainly may affect their neighbors well, depending on how much they pump.

And so I don’t want to get into a conflict where suddenly Mr. Smith comes to me and goes, hey, why aren’t you helping Jones? You know, he dried up my well. I have no water over here. And it’s because of your guy Jones. And then I have to say, oh, my gosh, well, maybe there’s a conflict here. Normally, I might not expect one. But that’s a red flag. Maybe I need to pay attention to that right off the bat.

Now, let me give you a real world example. Because we don’t handle, mostly, we don’t really handle big corporate interests, you know, from far away. We handle, you know, mostly small landowners, people that own forested areas, or just acreage of some kind, or they just like to develop them, or they want to build a house, or they have an easement problem, or something like that. So, we’re really on the ground, helping ordinary people. And because that’s our practice area, let me give you an example of how a conflict of interest may arise and how I evaluated it. I helped a woman over ten years ago, well, it’s about 10 years ago now. She was concerned that her septic fields, you know the the drainage fields for her septic system, were not properly situated on the property next door. So she called us and then hired me to read the documents in the Recorders office and figure out whether that septic was on an express easement or was it on an implied easement, or maybe there was some kind of a prescriptive right that she had developed over time. Whatever it was, we, we determined that the incident was properly there, the septic was okay, and we put our opinion in writing. And once the explanations were done, the client was satisfied and everything was taken care of. So I think that representation lasted, oh, gosh, is probably lasted in the neighborhood of six to nine months. And that’s on the very outside. But eventually, we got the matter resolved. So there we go. Well, now, about eight or nine years ago, one of the neighbors down the street had a problem with the road system in the area. This is an area where there’s all private roads. So I undertook an investigation of of that new client’s parcel documents in the Recorders office. And it started to drag me over here and drag me over there and who owned what, when they granted all these easements of all these roads. And frankly, it’s a bit of a nightmare. But I was able to research it to the extent where I was able to say, here’s definitively the story, the legal story about the road that goes over your parcel. This is for my new client. And it turns out this roadway is the primary entrance to a group of homes, probably, oh, I don’t know, maybe six or eight homes. It’s the only entrance and exit road for these six or eight folks, one of whom was the former client that I talked to about the septic a long time ago. And so I had actually forgotten about the old client, but in discussions my new clients wanted to move the road and it was like, well, sure, you can move the road and I know you don’t need anybody’s permission. It’s a private road. It’s for motor vehicle travel. So we figured all that out. They had an engineering company and were going to do it.

Then my old client suddenly told my new client, well, you can’t use Macomber Law because I am a former client of Macomber Law. And I looked at the conflict of interest rules and I said, well, there is a potential conflict. I mean, why couldn’t I help my new client against my old client? And the answer goes back to the confidentiality. If my old client had told me secrets that I could use against them on behalf of the new client, then that would be bad. You know, it would just be unfair. If I said, oh, well, you know, this person has a weak spot here, and this person has these financial attributes and these persons, you know, this and that. And so the conflict of interest rules caused me to look at that and say, okay, first of all, is this about the same subject matter? Well, first of all, is it the same case? Well, it is the same case. I said, okay. Is it the same subject matter area? The answer is, it’s not. Because the new subject matter area was a road, the old subject matter area was the septic field for a single parcel. And now it’s like a road for multiple parcels. And there’s a bunch of other people involved. So I thought, well, that’s really different. But the core question was, what do I know about this old client that I could use against her? And that’s really the core because, you know, you don’t want to do that ever.

The key to a conflict of interest is, every time you think there’s a possibility of a real conflict, you should just run the other way. That is the best attorney rule that I can think of. And, why is that true? it’s partially true because, on behalf of your clients, if you do run into a conflict of interest situation, the professional rules of responsibility require the attorney to withdraw. So, if there’s a conflict of interest between the current client and a former client, and the attorney can’t operate to help the new client against the old client because there’s a conflict, then I would have to withdraw, though my new client wouldn’t get any help. And the old client would be, I don’t know what they’d be. They’d probably be happy. But, you know, that’s really the key of it is you don’t want your old clients to feel like you’re betraying them or something. So I went through, and I looked at the old file, and we had already given the file back to the old client about the septic. So what I did have was a piece of paper file, dated, and signed by the former client. That said, we picked up our file today, and it was fine. And so I really didn’t have anything to look at. But I, I searched back and I thought about it. And I thought, how, what do I know about this person? Well, you know, turns out she’s actually quite secretive. And I don’t know anything about her. In fact, there was a hearing on the case, and I saw, apparently, I saw this woman in court, but I didn’t recognize any of the people opposing us in court. My client pointed her out after the hearing. She said, oh, they’re, you know, the group is coming out now. And so it’s like, okay. And she said, oh, there’s that that person, you know, which was my former client. She’s there in the red sweater. And so it’s like, wow, it really wasn’t a red sweater, of course, I change the color, because it’s a secret. But I looked at her and I thought, wow, I don’t even recognize that person. I didn’t even know who she was.

And, and so, before I even got into this case, with the new clients, I had done that conflict of interest review, myself, my files, the records in the office, whatever we had, I looked around for stuff. And I tried to measure, is my former client going to be at risk? Is there a conflict of interest? Where there could be a sense that I could use something I knew about the present client against the former client? And it turns out, the answer was no. I didn’t really didn’t know anything about her. I didn’t remember what she looked like, even. And we do so much business. We send out, you know, I don’t know, 50 to 60 invoices between two attorneys every month. And maybe five of those people were with us last year.

Most of our clients, they come in, we help them, we finish the matter, and then we’re done. And occasionally, there’s a case of a lawsuit that occurs or something and maybe we have a client for, you know, two or three years or whatever, until that gets resolved. But 10 years ago, gosh, we’ve gone through hundreds of clients, most of whom, you know, gosh darn it, I’m really sorry, but I don’t remember a lot of you. I might remember your name. I might remember your face, but I probably don’t remember the matter unless it was maybe within the last six or eight years. And on this one I really had to reach back on this one to see what the subject matter really was. But I do remember the septic.

And so those conflict of interest rules are something that all attorneys must pay attention to you look for the red flag. Is this client in my computer system? Do we have any files on them in the office? Do we have their name? Or are they a friend of somebody? Did we help them on a legal matter? Did we represent him? And what was that about? What was the subject matter? And then, the attorney has to dig a little bit and say, what do I really know about this person? And if the attorney finds within themselves that they know something that they could use against them, then they’re really obligated to go to the new client and say, you know, I am conflicted out. There are some things that I know about this person. It don’t want to be in a position where I might be tempted, or I might use them against them. I don’t want them to, you know, feel betrayed about anything. And so I just have to refuse the engagement.

Now. You know, that does happen. Even up here in rural North Idaho, it does happen. I’ve probably been conflicted out maybe five or six times over the years. Most of those circumstances, frankly, I think four of them were when a potential client walks in the office and we have a meeting. And then the neighbor who’s at war with them comes in within the week. And they say, oh, you know, those those people Smith, oh, they’re horrible people. And I say, oh, it’s nuts. Well, I just talked to Smith, I’m sorry, I can’t talk to you. And we just escort him out. So it’s relatively quick and painless, because they just have to go find another attorney. I mean, even if you meet with us, and you don’t hire us, we still have a duty of confidentiality, we still have an attorney client privilege not to divulge your secrets, and we can be conflicted out there can be a conflict of interest.

So those are the those are the things that attorneys worry about with a conflict of interest. And, you know, it’s okay to ask your attorney, hey, is there a conflict of interest with this person? That is the opposing party in my case, that is my neighbor. Have you ever worked for my neighbor before? Is there a conflict there? Because frankly, the attorney might not remember and you don’t want them to find out later you want them to find out now. So that’s a conflict of interest. And that’s really that subject and I hope, hope you’ll take those things into account the next time you hire an attorney. All right, thank you.

At Timely Contract, our primary legal services include: real estate contract review, real estate contract drafting, legal opinions for title insurance exceptions, and research, due diligence, and legal opinions for properties.

At Timely Contract, we have local real estate attorneys who have experience throughout Idaho, including: Boise, Post Falls, Coeur d’Alene, Lewiston, Moscow, and Sandpoint.

We also have local real estate attorneys who have experience throughout Montana, including: Missoula, Billings, Bozeman, and Kalispell.

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