In a domestic case, can a lawyer secure an unpaid fee with a deed of trust on the client's real property, including property that is the subject of the litigation?

Plain-English summary

The opinion answered a long series of inquiries from a lawyer in domestic cases whose client lacked the means to pay the fee and offered a promissory note secured by a deed of trust on real property. The opinion concluded that a lawyer may take a note secured by a deed of trust on real property as payment, provided the lawyer does not acquire a proprietary interest in the subject matter of the litigation in violation of Rule 5.3(a) and the transaction is fair to the client. In evaluating fairness, the lawyer must consider the client's sophistication, financial ability, and ability to pay the fee by other methods.

Turning to property that is itself the subject of the litigation, the opinion concluded that a lawyer may obtain a deed of trust on that property too, provided the transaction is fair, because the acquisition of a deed of trust is not the proprietary interest Rule 5.3(a) prohibits. It applied that answer across every variation presented: marital property; property held by the entireties before an absolute divorce; marital property before or after entry of an equitable distribution judgment; property titled solely in the client acquired during the marriage; and separate property acquired before the marriage or by bequest, devise, descent, or gift, at each stage of the divorce and equitable-distribution process. The opinion also concluded that the lawyer has an ethical obligation to file the client's lis pendens before recording the lawyer's own deed of trust, but declined, as a question of law beyond the Ethics Committee's authority, to address the effect that a notice of lis pendens by either party would have on the lawyer's deed of trust.

Currency note

This opinion was issued in 1995, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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: Can a domestic-case lawyer secure an unpaid fee with a deed of trust on the client's property?

A: Yes, if the transaction is fair to the client. The opinion concluded a lawyer may take a note secured by a deed of trust as payment, weighing the client's sophistication, financial ability, and ability to pay by other means.

Q: Does it matter that the property is the very property in dispute?

A: No, so long as the deal is fair. The opinion concluded that a deed of trust is not the proprietary interest in the litigation Rule 5.3(a) forbids, so the lawyer may take one even on the property that is the subject of the case.

Q: Does the timing in the divorce or equitable-distribution process change the answer?

A: No. The opinion gave the same answer across marital, entireties, and separate property, before and after the absolute divorce and the equitable-distribution judgment.

Q: Is there a step the lawyer must take when recording the deed of trust?

A: Yes. The opinion concluded the lawyer has an ethical obligation to file the client's lis pendens before recording the lawyer's own deed of trust.

Background and rules framework

The opinion applied North Carolina's then-current Rule 5.3(a), which prohibits a lawyer from acquiring a proprietary interest in the subject matter of litigation the lawyer is conducting for the client; that prohibition corresponds to Model Rule 1.8 (including the limits on acquiring an interest in litigation and on business transactions with clients). The opinion treated a deed of trust securing a fee as outside that prohibition, subject to the overarching requirement that the transaction be fair to the client.

Citations and references

Rules of Professional Conduct:

• MR 1.8 (conflicts; business transactions with clients; interest in litigation)
• North Carolina Rule 5.3(a)

See also

• NC Ethics Op. RPC 248: mortgage brokerage owned by lawyers
• NC Ethics Op. RPC 222: confession of judgment to secure a fee

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-186/

Original opinion text

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

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.