Securing Your Secrets? Solicitor-Client Privilege and Your Lender
You know the children’s poem “Rub-a-dub-dub, Three men in a tub”? Well, in the context of residential real estate, the “Three men in a tub” is you, your lender and your lawyer. Solicitor-client privilege stands as a cornerstone of the legal system; confidential communications between clients and their legal representatives must be maintained. This privilege plays a vital role in fostering trust and transparency while ensuring the protection of sensitive information. The “rub” in the context of residential real estate is that your lawyer will typically have 2 clients; you and your lender. In this article, we delve into the nuances of solicitor-client privilege within the realm of residential real estate closings, shedding light on its significance, scope, implications and limitations.
Understanding the Foundation of Solicitor-Client Privilege
Solicitor-client privilege, deeply rooted in legal traditions, serves as a shield for confidential communications exchanged between clients and their legal advisors. Originating from the need to uphold trust and confidentiality in the lawyer-client relationship, this privilege is enshrined in common law and statutory provisions. In the context of residential real estate transactions, where sensitive information abounds, solicitor-client privilege assumes heightened importance, laying the groundwork for open communication and effective legal representation.
The Dynamics of Residential Real Estate Transactions
Residential real estate closings involve a myriad of parties and stakeholders, each with distinct roles and interests. At the heart of this process are you, the homeowner-to-be, and your lawyer offering legal guidance. Solicitor-client privilege creates a confidential space wherein you can freely discuss your concerns, objectives, and financial details with your lawyer, without fear of disclosure to external parties. However, there is often a third party involved when purchasing a home; the mortgage lender. In most residential real estate transactions, the mortgage lender engages the buyer’s lawyer to put the loan in place. What that means is that the lawyer now has 2 clients, the homeowner-to-be and the lender.
Navigating the Interests of Multiple Clients
In the realm of residential real estate closings, your lawyer often wears multiple hats, representing both you, the buyer (or seller), and your lender. While this duality offers cost savings by eliminating the need for the mortgage lender to have its own lawyer involved, it comes at the cost of limitations to the solicitor-client privilege you would otherwise enjoy. When retained by both you and your lender, your lawyer must not keep information confidential that is relevant to the other party (i.e. if the homeowner-to-be shares information with their lawyer that is relevant to the lender, the lawyer has a duty to share that information with the lender). For example, if you have provided information to your lender in order to secure the loan and then give your lawyer information that contradicts that information, the lawyer has a duty to disclose that information to the lender client.
Examples of Conflicts of Interest
Examples of conflicts of interest between home buyers and lenders:
the down-payment was a “gift” from my parents, but I have a loan agreement with them and will pay it back (and they want the lawyer to register a mortgage to secure the repayment)
my “friend” is going to be an owner, but cannot be on title so I did not tell the bank (this is called a “beneficial owner”; banks want to know this stuff)
I want to do renovations after the closing so will get a second mortgage with a different lender, but not share this information with my primary lender
my boss (who is also a good friend) “fudged” my income so I would qualify for financing
Once we, as lawyers, learn this information, it cannot be unlearned and would have to be shared with the lender.
Navigating Exceptions and Challenges
Despite its overarching protection, solicitor-client privilege is subject to certain exceptions and challenges. The Law Society of Ontario is very clear about the role of solicitor-client privilege: in order to be protected, the communication must be intended to be confidential, it must be between the lawyer and the lawyer’s client, and it must be for the purpose of seeking or giving legal advice. Communications made in the presence of third parties would be deemed not to be “confidential” and therefore would not be subject to the privilege. In the context of this article, when the lawyer has 2 clients on the same transaction (homeowner-to-be and the lender to the homeowner-to-be) the lawyer cannot keep secret confidential information that one of those parties gives that is relevant to the other party. Understanding how the privilege works, and the exceptions to the privilege, is crucial for all parties involved in residential real estate transactions to navigate potential challenges effectively.
Conclusion
In the intricate world of legal relations, solicitor-client privilege is considered a cornerstone of the relationship between the lawyer and their client, and is a fundamental right in Canada. However, when you and your lender use the same lawyer (which is very common in the context of residential real estate purchases) the lawyer has a duty to both of their clients. By understanding the nuances of solicitor-client privilege, its implications and limitations, you can better navigate the complexities of real estate transactions with confidence.