Security Interest in Real Property Which is Subject of Domestic Litigation
Adopted: April 14, 1995
Opinion rules that a lawyer who represents a client in a pending domestic action may take a promissory note secured by a deed of trust as payment for the lawyer's fee even though the deed of trust is on real property that is or may be the subject of the domestic action.
Inquiry #1:
Client in a domestic case is without financial means to pay the entire fee owed to her lawyer. Client offers to execute a deed of trust and promissory note in favor of the lawyer as payment for the lawyer's services. Generally speaking, in a domestic case may a lawyer take a note secured by a deed of trust against real property which is not the subject of the litigation for which the client is being represented?
Opinion #1:
Yes, a lawyer may take a promissory note secured by a deed of trust on real property as payment for services rendered provided that the lawyer does not acquire a proprietary interest in the subject matter of the litigation the lawyer is conducting for the client in violation of Rule of Professional Conduct 5.3(a) and further provided that the transaction is fair to the client. In evaluating the fairness of such a transaction, the client's sophistication, financial ability, and the ability of the client to pay the fee by other methods must be taken into consideration.
Inquiry #2:
Generally speaking, may a lawyer handling a domestic case obtain a note secured by a deed of trust on real property which is the subject of the litigation for which the client is being represented?
Opinion #2:
Yes, provided the transaction is fair to the client. Although Rule 5.3(a) prohibits a lawyer from acquiring a proprietary interest in the subject matter of the litigation the lawyer is conducting for the client, the acquisition of a deed of trust on real property is not a proprietary interest prohibited by the rule.
Inquiry #3:
If the answer to either Inquiry #1 or Inquiry #2 above is affirmative, under which of the following circumstances would a lawyer be allowed to accept a promissory note secured by a deed of trust for services rendered in a domestic action for divorce and equitable distribution?
Inquiry #3(a):
If the real property is marital property, may the attorney secure his or her fee with a promissory note secured by a deed of trust against the marital property?
Opinion #3(a):
Yes. See Opinion #2 above.
Inquiry #3(b):
Prior to the granting of an absolute divorce and judgment of equitable distribution, may a lawyer accept a promissory note secured by a deed of trust on property held by the client, and his or her spouse in a tenancy by the entirety?
Opinion #3(b):
Yes. See Opinion #2 above.
Inquiry #3(c):
After the granting of an absolute divorce but prior to the entry of a judgment of equitable distribution, may a lawyer accept a promissory note secured by a deed of trust on marital property as payment of the legal fee?
Opinion #3(c):
Yes. See Opinion #2 above.
Inquiry #3(d):
After the granting of an absolute divorce and the entry of a judgment of equitable distribution whereunder the real property was distributed to the client, may a lawyer accept a promissory note secured by a deed of trust on property that was formerly marital property as payment of the legal fee?
Opinion #3(d):
Yes. See Opinion #2 above.
Inquiry #3(e):
Would there be a different response to any of the inquiries posed above if the real property were not the marital property but was merely a parcel of real property owned by the litigants?
Opinion #3(e):
No.
Inquiry #4:
If the real property is titled solely in the name of the client and was acquired during the marriage, may the lawyer accept a promissory note secured by a deed of trust on the property as payment for the legal fees under any of the following circumstances:
Inquiry #4(a):
Prior to the granting of an absolute divorce and judgment of equitable distribution?
Opinion #4(a):
Yes. See Opinion #2 above.
Inquiry #4(b):
After the granting of an absolute divorce but prior to the entry of a judgment of equitable distribution?
Opinion #4(b):
Yes. See Opinion #2 above.
Inquiry #4(c):
After the granting of an absolute divorce and the entry of a judgment of equitable distribution?
Opinion #4(c):
Yes. See opinion #2 above.
Inquiry #5:
If the real property is titled solely in the name of the client and was acquired before the marriage or was acquired by bequest, devise, descent, or gift during the course of marriage, may the attorney accept a promissory note secured by a deed of trust on the property as payment of the legal fee under the following circumstances:
Inquiry #5(a):
Prior to the granting of an absolute divorce and judgment of equitable distribution?
Opinion #5(a):
Yes. See Opinion #2 above.
Inquiry #5(b):
After the granting of an absolute divorce but prior to the entry of a judgment of equitable distribution?
Opinion #5(b):
Yes. See Opinion #2 above.
Inquiry #5(c):
After the granting of an absolute divorce and the entry of a judgment of equitable distribution?
Opinion #5(c):
Yes. See Opinion #2 above.
Inquiry #6:
Does the attorney have an ethical obligation to file the client's lis pendens prior to the recordation of his deed of trust?
Opinion #6:
Yes.
Inquiry #7:
What effect does the filing of a notice of lis pendens by either party have on the lawyer's deed of trust?
Opinion #7:
It is outside the authority of the Ethics Committee to respond to a question that seeks an opinion about the law.