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The question Associations should ask their law firm

By Sean Galaris
President, LM Funding

Today’s real estate crisis has been catastrophic for the homeowner faced with foreclosure and severely under-water values. Likewise, condominium associations deal with abandoned units, owners who haven’t been paying monthly fees, and elimination of services due to budget shortfalls.

Forced, in many cases, to foreclose, banks have an ever-growing inventory of non-performing loans.

The one sector that is thriving is the legal industry which prospers by collecting from banks on behalf of associations and foreclosing on behalf of financial institutions. They aren’t playing on both sides of the fence on the same cases, but by positioning themselves as resources — on separate cases — for these adversaries there is the potential of conflict of interest, as defined by the Florida Bar.

The question condominium associations should ask when retaining a law firm is: Can this association law firm represent us objectively when financial institutions are also in their client portfolio?

Our feeling is that in most cases, the answer is a resounding “no.”

It has always been our policy that law firms must make a choice — represent associations or banks. By representing both — again in separate cases — the lawyer’s loyalty and independent judgment can be severely compromised at the expense of the client.

In representing an association and a bank, a conflict of interest will inevitably arise. One or both may disagree on when to foreclose on a unit, which will put the lawyer in a difficult position. While a lawyer may not represent opposing parties in litigation, a lawyer can represent parties having antagonistic positions on a legal question in different cases, unless representation of either client would be adversely affected. This means that a lawyer could represent both an association and a bank in different cases, even though they have opposing positions, as long as the lawyer/firm reasonably believes he/she is able to represent both clients. The representation is not prohibited by law and each affected client gives informed written consent.

Engagement letters are required to inform the client of this potential conflict of interest. However, we’ve seen time and again that this important information is missing.

Before a client can consent to waiver of the conflict in writing, a lawyer has a duty to explain the risks and advantages of the lawyer’s representation that may be burdened with a conflict of interest.

We don’t see how a law firm can claim total objectivity when it represents both banks and condominium associations. For example, a large bank could certainly exert influence – overtly or implied – on a case involving an association battling that same bank on the Safe Harbor Law. There also may be forces at work that could result in a law firm not being as forceful as it should when representing and association in a case with a major bank client.

The Florida Bar agrees since it dedicates quite a bit of language to this potential problem. For example:

(a) Representing Adverse Interests. A lawyer shall not represent a client if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a substantial risk that the representation of 1 or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a conflict of interest under subdivision (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a position adverse to another client when the lawyer represents both clients in the same proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing or clearly stated on the record at a hearing.

Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client. Conflicts of interest can arise from the lawyer’s responsibilities to another client, a former client or a third person, or from the lawyer’s own interests.

It is apparent that many law firms in Florida have crossed the line by representing all of these parties in what has become very contentious and emotional litigation. Associations should steer clear of law firms that represent banks they are battling for past-due assessments.