The Mortgage Instructions Toolkit provides practical guidance for lawyers responding to lender requests in residential real estate transactions. This page addresses the lawyer’s duty to inform the lender.

The situation

In residential mortgage transactions, lawyers usually have two clients, the lender and the borrower. The interests of these two clients are different, and may be in conflict. It is the lawyer’s duty to advise the lender of any information about the borrower or about the property that would affect the lender’s interests. This information has the potential to conflict with the borrower’s interests, such as being able to close the loan or receiving the most favorable rate on the loan from the lender.

Sample lender instructions

The lender will expect your final report to draw to its attention any circumstances peculiar to this borrower. If during the course of your work on this file any circumstances occur that are, in your opinion extraordinary, the lender will expect to be notified immediately.

Practice Guidance

• Make sure that your borrower client knows from the outset that you are also working for the lender client. Explain that you cannot withhold relevant information from either client. Ideally, clarify your dual role in your retainer letter. Have your client acknowledge receipt of this information and sign a consent. This will reduce surprises and ill-will between your clients, as well as the potential for liability.
• If negative information comes to light, speak to your borrower client about their options. You may offer your borrower client a choice - that you will inform the lender of the negative matter or that you will tell the lender that you are withdrawing from the file, and are no longer able to work for the lender on this file. This may be a red flag for the lender, and the borrower should understand that even if you remain silent after withdrawing from the file, the lender may learn of the negative information, though not from you.
• When an actual conflict arises, you must inform both of your clients, and receive their informed written consent to continue or withdraw from representing both clients.  In some circumstances the conflict may not be waived and the lawyer must withdraw.

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