conflict of interest
22 | spring 2017 cmba-achc.ca CmB magazine
Q
The Question
Can the law firm that acted for a borrower
at the time a mortgage was put into place,
act against the same borrower in collection
and foreclosure proceedings under that same
mortgage?
Background
Lenders sometimes form trusting relationships
with law firms that act for them at the time
mortgages are registered and funded. Oen the
same law firm concurrently acts for borrowers
and in doing so advises them as to the content
of the mortgage documentation and their
obligations under the mortgage. If a borrower
later defaults under their mortgage, it is not
surprising the lender would trust the same
law firm to act for the lender in collection and
foreclosure proceedings.
Short Answer
In answer to the question stated at the outset of
this article, almost without fail the answer is no.
e law firm would be in a conflict of interest.
What Happened?
e Newfoundland and Labrador Supreme
Court in Scotia Mortgage Corporation v.
Furlong, 2017 CanLII 4833 (NL SCTD)
recently addressed this issue.
In 2011, a law firm acted for a borrower
with regard to a residential real estate
purchase; at the same time, it acted for both
the borrower and the lender with regard to the
mortgage that financed the purchase.
e law firm merged with another law firm
in 2014.
In 2016, the borrower was in default
under the mortgage. e lender retained the
merged law firm for collection and foreclosure
proceedings against the borrower. e merged
law firm sent a demand for payment and
notice to vacate to the borrower. Later on, it
filed a court application for an order that the
borrower provide vacant possession of the
mortgage security property.
e borrower claims to have brought the
mortgage into good standing, other than he
had not paid the legal fees charged to him by
the merged law firm. e merged law firm
continued with the foreclosure proceedings,
presumably because the outstanding fees
represented a breach under the mortgage.
e borrower brought an application
to have the merged law firm declared to be
in a conflict of interest in the foreclosure
proceedings. He claimed he should not have to
pay fees incurred while the conflict existed.
Decision re: Conflict of Interest
e Court said that the merged firm was in a
conflict of interest for the following reasons.
e merged law firm had a prior
relationship with the borrower, because the
initial law firm had a relationship with him
prior to merging.
e earlier mortgage matter and the
later foreclosure matter were not the same
matter, but they were related. In 2011, the
law firm provided the borrower with legal
advice on his rights and obligations under
the mortgage. is advice would have been
central to the firm's retainer at the time. In the
A lender's most trusted lawyer may not
be available for foreclosure
By Ray Basi, LL.B., staff, Education and PoLicy REviEw
Problems
with Excessive Trust
