Can a lawyer secure a fee by taking a mortgage or security interest in a client's property that is unrelated to the matter being handled?

Plain-English summary

An attorney who often represents indigent or cash-poor clients in civil or criminal matters asked whether he could ethically take a promissory note secured by a mortgage or security interest in the client's property, to ensure payment of legal fees, where the secured property is unrelated to the litigation for which the attorney was retained.

The Commission concluded the arrangement was permissible. Because the facts specified that the secured property was not the subject of the representation, Rule 3.7(c), which bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of the litigation, was not implicated (citing Opinion 64). The Commission contrasted the situation where the security interest is in property that is the subject of a pending or contemplated suit (for example, a mortgage on real estate that is the subject of a title dispute), which would be impermissible (citing Opinion 92).

Even where permitted, the Commission stressed that Rule 3.4(f) applies because the secured note is a business transaction with a client: the terms must be fair and reasonable and fully disclosed in terms the client can understand, the client must be advised and given a reasonable opportunity to seek independent professional advice about the note, security agreement, or mortgage, and the client must consent. The Commission added that no separate written consent is required under subsection (1)(C) if the client executes a note and a written security interest or mortgage.

Currency note

This opinion was issued in 1994, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could a lawyer take a mortgage on a client's property to secure unpaid fees?

A: The opinion concluded yes, where the property is unrelated to the matter. It held Rule 3.7(c) was not implicated because the property was not the subject of the litigation, so a secured note was permissible if Rule 3.4(f)'s conditions were met.

Q: When would securing the fee be off limits?

A: When the security is in property that is the subject of the suit. The opinion noted that a mortgage on real estate that is itself the subject of a title dispute would be impermissible under Rule 3.7(c) (citing Opinion 92).

Q: What did the lawyer have to do to make the secured note proper?

A: The opinion required compliance with Rule 3.4(f): fair and reasonable terms, full disclosure the client can understand, and a reasonable opportunity for the client to seek independent advice; it added that executing a written note and security instrument satisfies the consent requirement.

Background and rules framework

The opinion interprets Maine Bar Rule 3.4(f) (acquiring an interest adverse to a client or entering a business transaction with a client) and Rule 3.7(c) (no proprietary interest in the cause of action or subject matter of the litigation). These correspond to ABA Model Rule 1.8(a) (business transactions with a client) and Model Rule 1.8(i) (acquiring a proprietary interest in the cause of action or subject matter of litigation).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.8(a) (business transactions with a client)
• Model Rule 1.8(i) (proprietary interest in the cause of action)
• Maine Bar Rule 3.4(f), 3.7(c)

Other opinions cited:

• Maine PEC Opinion 64; Opinion 92

See also

• Maine Ethics Op. 152: Pledging Firm Receivables
• ABA Formal Op. 00-416: Buying a Client's Receivables

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=89780

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Issued by the Professional Ethics Commission

Date Issued: August 22, 1994

Question

An attorney often represents indigent or cash poor clients in civil or criminal matters. The attorney wishes to know if he may ethically take a promissory note and secure the note by a mortgage or security interest in property of the client to insure the payment of legal fees, if the property is unrelated to the litigation on which the attorney has been retained.

Opinion

Bar Rule 3.4(f) provides:

(1) A lawyer shall not knowingly acquire a property or pecuniary interest adverse to a client, or enter into a business transaction with a client, unless:

(A) The transaction and terms in which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted to the client in manner and terms which should have reasonably been understood by the client;

(B) The client is advised and given a reasonable opportunity to seek independent professional advice of counsel of the client?s choice on the transaction; and

(C) The client consents in writing thereto.

Rule 3.7(c) provides in part:

A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of the litigation the lawyer is conducting for the client....

Since the facts of the Request specifically state that the property in which the security is given is not the subject of the representation, Rule 3.7(c) is not implicated. See Opinion 64. Where, however, the security interest is in property that is the subject of a pending or contemplated suit, for example a mortgage on real estate which is the subject of a title dispute, then such mortgage would be impermissible. See Opinion 92.

However, even when permitted, Rule 3.4(f) requires that the terms of the note and security interest must be fair and reasonable and must otherwise be executed by the client in circumstances which comply with that Rule, including that the client be advised to seek independent professional advice with respect to the note, security agreement or mortgage. No separate written consent is required under sub‑section (1) (C) if the client executes a note and written security interest or mortgage.