When a real estate closing check is routed through the seller's lawyer's trust account and that account turns out to be short, has the seller's lawyer committed an ethics violation, and did the buyer's lawyer?

Plain-English summary

At a real estate closing, the seller's lawyer (Attorney S) asked the buyer's lawyer (Attorney B) to make the balance check payable to "Attorney S Trust Account," although the sale contract required payment to the seller and barred oral variances. Attorney B complied, took the deed, and recorded it. Attorney S sent his seller client a $70,000 trust-account check after depositing B's check. But Attorney S's trust account already had a $60,000 deposit that bounced after he had drawn it down for another client, so the seller's $70,000 check was refused for insufficient funds. The Commission assumed Attorney S had used his trust account for his own purposes rather than for his client's benefit.

The Commission concluded that, on these facts, it did not believe an ethical infraction had occurred, because the facts did not show how the problem was resolved or how quickly the seller received his funds. Under Maine Bar Rule 3.6(f)(2), a lawyer must promptly notify a client of receipt of funds, safeguard and account for them, and promptly pay or deliver funds the client is entitled to receive. Attorney S had a duty to deliver $70,000 to his seller client; if the funds were no longer in his trust account, he was nonetheless obligated to pay that amount, from his own funds if necessary. A brief delay while payment was arranged would not violate Rule 3.6(f)(2)(iv), but any substantial delay would subject Attorney S to discipline.

The Commission added that Attorney S's conduct reflected very poor judgment and exemplified the peril of drawing checks against uncollected funds, and that Attorney B also exercised poor judgment, though not an ethics violation, by letting his fellow attorney persuade him to pay otherwise than directly to the seller; that concession exposed his buyer client to the risk of litigation over the conveyance's validity, a risk easily avoided by closer compliance with the contract.

Currency note

This opinion was issued in 1983, 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 Treat this page as historical context, not current guidance.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: Did the seller's lawyer violate the rules when his trust account came up short?

A: The opinion concluded no infraction was shown on the given facts, because they did not reveal whether the seller was promptly paid; the lawyer was obligated to deliver the full amount regardless.

Q: Must a lawyer cover a client's funds from his own pocket if the trust account is short?

A: The opinion concluded yes. If the funds were no longer in the trust account, Attorney S was still obligated to pay the seller the full amount, using his own funds if necessary.

Q: How long a delay in paying the client is tolerable?

A: The opinion concluded a brief delay while payment is arranged would not violate Rule 3.6(f)(2)(iv), but any substantial delay would subject the lawyer to disciplinary action.

Q: Did the buyer's lawyer act improperly by paying into the seller's lawyer's trust account?

A: The opinion concluded he exercised poor judgment, but not an ethics violation, by paying contrary to the contract; the concession exposed his client to litigation risk over the conveyance.

Background and rules framework

The opinion interprets former Maine Bar Rule 3.6(f)(2), which governs a lawyer's handling of client funds and property: prompt notice of receipt, safekeeping, recordkeeping and accounting, and prompt payment or delivery of funds the client is entitled to receive. This corresponds to ABA Model Rule 1.15 (safekeeping property).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 (safekeeping property)
• Maine Bar Rule 3.6(f)(2)

See also

• Maine Ethics Op. 106: Firm as Escrow Agent for Both Sides
• Maine Ethics Op. 141: Real Estate Escrow Accounts
• Maine Ethics Op. 127: Paying Out Assigned Client Funds

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=89676

Original opinion text

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

Issued by the Professional Ethics Commission

Date Issued: November 22, 1983

The Commission has received a request for an advisory opinion about the ethical propriety of the attorney's conduct in the following situation.

Facts

Attorney for Seller (Attorney S) at real estate closing asks Attorney for Buyer (Attorney B) to make out the check for the balance of the purchase price payable to "Attorney S Trust Account." The contract of sale called for the balance due to be paid by check payable to order of Seller, and provided that no term of the contract could be varied except by agreement in writing signed by both parties. No such written variance was made. Attorney B has in his trust account the amount of the purchase price paid to him by Buyer, and he has no authority to do other than close according to the terms of the contract. Attorney S does not have written authority from his client, Seller, to show Attorney B authorizing Attorney S to have the money paid to Attorney S Trust Account. Attorney S urges Attorney B to comply with request anyway. Attorney S does have a trust account. It has in it only a small amount of the attorney's personal funds necessary to cover bank charges. Earlier on the day in question Attorney S had deposited a check for $60,000.00 but he has already drawn a check against this deposit for $60,000.00 payable to Client Z who is entitled thereto.

Attorney B draws a check on his trust account for the balance due, $70,000.00, payable to "Attorney S Trust Account," receives the deed, and records it. Attorney S sends a check drawn on his trust account to his Seller client for the full $70,000.00, having deposited the check received from Attorney B. The next day Client Z cashes his check for $60,000 at the bank. Right after that the check for $60,000.00 which has been deposited is returned, payment refused. When Seller presents his check to the bank for $70,000.00, he is refused payment because of insufficient funds. We assume that Attorney S used his trust account in this transaction for his own purposes and not for the benefit of his client.

Opinion

On the facts given, the Commission does not believe that an ethical infraction has occurred. The facts presented do not tell us what we critically need to know, which is how the problem was resolved and how quickly Seller received his funds, if he ever did.

Maine Bar Rule 3.6(f)(2) provides:

A lawyer shall:

(i) Promptly notify a client of the receipt of his funds, securities, or other properties;

(ii) Identify and label securities and properties of a client promptly upon receipt and place them in a safe-deposit box or other place of safekeeping as soon as practicable;

(iii) Maintain complete records of all funds, securities, and other properties of a client coming into possession of the lawyer and render prompt and appropriate accounts to his client regarding them; and

(iv) Promptly pay or deliver to the client, as requested by the client, the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive. (Emphasis added).

On the facts presented by this inquiry, it was the duty of Attorney S to deliver $70,000.00 to his Seller Client. If the funds were no longer available in his trust account, Attorney S was nevertheless obligated to pay that amount to Seller. Attorney S was required to use his own funds if necessary. It is the Commission's opinion that a brief delay while this payment was arranged would not amount to a violation of 3.6(f)(2)(iv), but any substantial delay would subject Attorney S to disciplinary action.

Obviously the conduct outlined by this inquiry represents very poor judgment on the part of Attorney S and exemplifies the peril of drawing checks against uncollected funds. Attorney B likewise exercised poor judgment, but in our opinion not an ethical violation, by allowing his fellow attorney to persuade him to make the purchase funds payable otherwise than directly to the Seller. This concession subjects his Buyer client to the risk of litigation over the validity of the conveyance, a risk which could easily have been avoided by more exact compliance with the contract.