Can a lawyer foreclose on a current client's property to collect an unpaid fee while still representing the client?

Plain-English summary

A lawyer represented a client in a domestic case and took a promissory note for the fee, secured by a deed of trust on property not involved in the domestic action. After sending a notice of demand, the lawyer initiated foreclosure to collect on the deed of trust while still representing the client in the domestic case. The question is whether the lawyer may do that.

The opinion answers no. While a lawyer could acquire the deed of trust in the first place if he complied with Rule 1.8(a) (the business-transaction-with-a-client requirements), enforcing the security interest by foreclosing on the grantor while currently representing him, even in an unrelated matter, creates a conflict of interest under Rule 1.7(a)(2). The opinion adds that Rule 8.4(g) makes it professional misconduct for a lawyer intentionally to prejudice or damage a client during the professional relationship, except as Rule 3.3 may require. The lawyer should not initiate foreclosure against the client until the representation has concluded. As a matter of procedure, Comment [16] to Rule 1.8 requires the lawyer, before initiating a foreclosure on property subject to a lien securing a legal fee, to notify the client of the right to require the lawyer to participate in the State Bar's mandatory fee dispute resolution program.

In practice

Under the North Carolina rules as they stood at the time of the opinion, a lawyer who holds a fee-securing deed of trust on a current client's property may not foreclose to collect the fee while the representation continues, even where the secured property is unrelated to the matter, because foreclosing against a current client creates a Rule 1.7(a)(2) conflict and risks the intentional prejudice Rule 8.4(g) forbids.

Per the opinion, the lawyer should wait until the representation has concluded, and even then, before initiating foreclosure on property subject to a lien securing a legal fee, must notify the client of the right to require the lawyer to participate in the State Bar's mandatory fee dispute resolution program (Rule 1.8, Comment [16]).

Common questions

Q: Can I foreclose on my client's property to collect my fee while I still represent them?

A: No. The opinion concludes that enforcing the security interest against a current client, even in an unrelated matter, creates a conflict under Rule 1.7(a)(2) and risks prejudicing the client under Rule 8.4(g); wait until the representation has concluded.

Q: Was it improper to take a deed of trust securing my fee in the first place?

A: No, not if the lawyer complied with Rule 1.8(a)'s requirements for a business transaction with a client. The opinion's problem is enforcing that interest by foreclosure during the representation, not acquiring it.

Q: What must I do before foreclosing on property securing a legal fee?

A: Per Comment [16] to Rule 1.8, the opinion requires notifying the client of the right to require the lawyer to participate in the State Bar's mandatory fee dispute resolution program before initiating the foreclosure.

Background and rules framework

The opinion applies North Carolina Rule 1.7(a)(2) (a concurrent conflict where the representation may be materially limited by the lawyer's own interests), Rule 1.8(a) and Comment [16] (business transactions with a client; fee-dispute-resolution notice before foreclosing on a fee lien), and Rule 8.4(g) (professional misconduct to intentionally prejudice or damage a client during the representation). These are the North Carolina analogues of Model Rules 1.7, 1.8, and 8.4.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / NC Rule 1.7(a)(2) (concurrent conflict; material limitation by the lawyer's own interests)
• MR 1.8 / NC Rule 1.8(a), Comment [16] (business transactions with a client; notice of fee dispute resolution before foreclosure)
• MR 8.4 / NC Rule 8.4(g) (intentionally prejudicing or damaging a client during the representation)

See also

• ABA Formal Op. 00-416: Buying a Client's Receivables
• NC State Bar 2009 FEO 11: Debtor vs Lender Client
• NC State Bar 2012 FEO 3: Interest on Overdue Bills

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2008-formal-ethics-opinion-12/

Original opinion text

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

Inquiry #1:

Lawyer represents Client in a domestic case. In exchange for Lawyer's services, Client executed a promissory note, which was secured by a deed of trust on property that is not involved in the domestic action. Lawyer sent Client a "Notice of Demand" regarding payment on the note. Soon thereafter, Lawyer initiated foreclosure proceedings in an effort to collect on the deed of trust. Lawyer continues to represent Client in the domestic case.

May Lawyer initiate foreclosure proceedings against Client while continuing to represent Client ?

Opinion #1:

No. Although Lawyer could acquire a deed of trust on the property if he complied with Rule 1.8(a), enforcing the security interest while currently representing the grantor of the interest, even in an unrelated matter, creates a conflict of interest in violation of Rule 1.7(a)(2). Moreover, Rule 8.4(g) provides that it is professional misconduct for a lawyer intentionally to prejudice or damage his or her client during the course of the professional relationship, except as may be required by Rule 3.3. Lawyer should not initiate foreclosure proceedings against Client until the representation is concluded.

As a matter of procedure, comment [16] to Rule 1.8 provides that, prior to initiating a foreclosure on property subject to a lien securing a legal fee, a lawyer must notify a client of the right to require the lawyer to participate in the State Bar's mandatory fee dispute resolution program.