A trustee in a power of sale foreclosure has a fiduciary duty to both the debtor and the creditor. In re Foreclosure of Vogler Realty, Inc., 365 N.C. 389, 397 (2012). The trustee must be impartial in the performance of his or her duties as a disinterested third party and may not give an unfair advantage to one party to the detriment of the other. Id. See also In re Foreclosure by Goddard & Peterson, PLLC, 789 S.E.2d 835, 841 (2016); In re Foreclosure of Real Property for $143,600.00, 156 N.C. App. 477, 483 (2003). This duty is recognized in G.S. Chapter 45, which requires that the notice of hearing include a statement that the trustee is a neutral party and, while holding that position, may not advocate for the creditor or the debtor in the foreclosure proceeding. G.S. 45-21.16(c)(7)(b).
A trustee may be held liable for breach of fiduciary duty through a civil action brought in district or superior court. See Goddard, 789 S.E.2d at 841. If the trustee is an attorney or represented by an attorney, then the attorney also may be subject to sanctions by the N.C. State Bar for violating the N.C. Rules of Professional Conduct. This includes Rule 1.7(a) which prohibits the common representation of multiple clients if the representation involves a concurrent conflict of interest. A number of ethics opinions drafted by the Ethics Committee of the State Bar provide guidance to an attorney serving as or representing a trustee in a power of sale foreclosure. See CPR 94; CPR 166; CPR 201; CPR 220; CPR 297; CPR 305; RPC 3; RPC 64; RPC 82; RPC 90; 2004 FEO 3; 2008 FEO 11; 2011 FEO 5; 2013 FEO 5; and 2014 FEO 2.
A new law, Session Law 2017-206, went into effect on August 30, 2017 codifies a number of these opinions. The law contains a modification and addition to G.S. Chapter 45-10 and directly applies to those situations in foreclosure proceedings where an attorney is serving as the trustee. This post will give some preliminary thoughts on the new law as well as briefly discuss some of the related ethics opinions. For a more detailed review and application to a particular case in your practice, I would recommend reviewing the full ethics opinions cited herein.