Can a lawyer take a mortgage or other security interest in a client's property to make sure the fee gets paid?
ABA Formal Opinion 02-427: Taking a Security Interest to Secure a Fee
Short answer: The opinion concludes that a lawyer who acquires a contractual security interest in a client's property to secure payment of fees earned or to be earned must comply with Rule 1.8(a)'s requirements for business transactions with a client, and may acquire such an interest in the very property that is the subject of litigation the lawyer is conducting only if the lien is authorized by law as Rule 1.8(i) requires.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the American Bar Association's Model Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The opinion addresses when a lawyer may take a contractual security interest, such as a mortgage or lien on a client's property, to secure payment of the lawyer's fee. The committee reaffirms that taking security for a fee is not improper in itself, but treats the security arrangement as a business transaction with a client governed by Rule 1.8(a), even though an ordinary fee agreement is not. The client must therefore receive Rule 1.8(a)'s protections: terms that are fair and reasonable and fully disclosed in writing, a written recommendation to seek independent counsel, and the client's informed consent in a signed writing. The committee states that "a lawyer who acquires a contractual security interest in a client's property to secure payment of fees earned or to be earned must comply with Model Rule 1.8(a)."
A separate analysis governs property that is the subject of litigation the lawyer is handling. Rule 1.8(i) bars acquiring a proprietary interest in the subject matter of litigation but permits a lien "authorized by law" to secure the lawyer's fee or expenses. The committee reads "authorized by law" to include liens acquired by contract with the client, resolving a prior split over whether a contractual lien is a forbidden proprietary interest. It concludes that "former Rule 1.8(j) should not be applied to prohibit acquisition of an otherwise legally and ethically obtained lien and that Rule 1.8(i) expressly permits such a lien to be acquired," so a lien in the subject of litigation may be acquired independently of Rule 1.8(a).
The opinion also addresses possession and enforcement. Where the lawyer holds the client's property, Rule 1.15 requires safekeeping. On foreclosure, a lawyer may not assert a right greater than the client's interest or use a lien solely to thwart third persons' legitimate rights, and any value realized beyond a reasonable fee and reasonable costs of preserving and enforcing the security is client property under Rule 1.15. As the committee puts it, "unless the property has been transferred voluntarily to the lawyer in satisfaction of the fee, a lawyer may not retain the value of the collateral exceeding the reasonable fee plus the reasonable costs of preserving and realizing on the security."
In practice
Under this opinion, and under the Model Rules as they stood at the time, securing a fee with a client's property is permissible but is treated as a Rule 1.8(a) business transaction, so the writing, independent-counsel advice, and signed informed consent apply. The opinion separates the litigation-subject case under Rule 1.8(i), allowing a contractual lien there if authorized by law. It also limits realization: a lawyer's recovery on the security is capped at a reasonable fee plus reasonable enforcement costs, with any surplus held as client property under Rule 1.15.
Common questions
Q: Can I take a mortgage on my client's house to secure my fee?
A: Yes, if you follow Rule 1.8(a). The opinion concludes a lawyer "may acquire a security interest in client's property to secure a fee," but the arrangement must meet Rule 1.8(a)'s business-transaction safeguards.
Q: What does Rule 1.8(a) require for that arrangement?
A: Fair and reasonable terms disclosed in writing, a written recommendation to get independent counsel, and the client's informed consent in a signed writing. The opinion applies these because securing a fee is a business transaction with the client.
Q: Can the security be the very property we're litigating over?
A: Only if the lien is authorized by law. The opinion reads Rule 1.8(i) to permit a contractual lien in the subject of litigation, resolving older doubt about whether that was a forbidden proprietary interest.
Q: If I foreclose, can I keep whatever the property is worth?
A: No. The opinion limits recovery to a reasonable fee plus reasonable costs of preserving and enforcing the security; any excess value is client property held under Rule 1.15.
Background and rules framework
The opinion interprets Model Rule 1.8(a) (business transactions with a client), Rule 1.8(i) (formerly 1.8(j)) (proprietary interest in the subject of litigation, with the "authorized by law" lien exception), Rule 1.15(a) (safekeeping client property and surplus collateral value), and Rule 1.5 (reasonableness of fees and cash retainers), noting Rule 1.7 in connection with enforcing the interest. It is based on the Model Rules as amended in August 2002.
Citations and references
Rules of Professional Conduct:
- ABA Model Rule 1.8(a) and Comment [16] (business transactions with a client)
- ABA Model Rule 1.8(i) (formerly 1.8(j)) (lien authorized by law in subject of litigation)
- ABA Model Rule 1.15(a) and Comment [1] (safekeeping; surplus collateral value)
- ABA Model Rules 1.5, 1.7 (fee reasonableness; conflict on enforcement)
Statutes:
- U.C.C. §§ 9-207, 9-208, 9-611
Cases:
- Weiss v. Statewide Grievance Committee, 633 A.2d 282 (Conn. 1993)
- Skarecky & Horenstein v. 3605 North 36th Street Co., 825 P.2d 949 (Ariz. Ct. App. 1991)
Other opinions cited:
- ABA Informal Op. 593 (1962): mortgage note to secure a future fee
- ABA Formal Op. 00-418 (2000): acquiring ownership in a client for legal services
See also
- ABA Formal Op. 484: Clients Using Companies or Brokers to Finance the Fee
- ABA Formal Op. 505: Fees Paid in Advance for Contemplated Services
- ABA Formal Op. 475: Safeguarding Fees Subject to Division
Source
- Landing page: ABA Formal Ethics Opinions index
- Original PDF: 02-427.pdf