At a real estate closing, must the attorney collect all earnest money in certified funds and handle every dollar, and can the buyer's lawyer charge the seller a fee?

Plain-English summary

The inquiry posed four questions about how a closing attorney handles funds in a residential real property closing. On earnest money, the opinion concluded the closing attorney need not collect it in certified funds: while issuing trust checks only against collected funds is the better practice, CPR 358 recognizes that checks may be drawn against provisionally credited funds, and the attorney should do so only when reasonably believing the deposited instrument is virtually certain to be honored and the attorney's own assets or credit could cover the trust checks if a provisionally credited item is dishonored.

On whether all earnest money must be entrusted before closing, the opinion concluded the better practice of receiving and disbursing all funds is not absolutely compelled. The attorney has an absolute obligation under Rule 10.2(E) to follow the client's instructions about entrusted money; if, as in RPC 44, the lender conditions disbursement of loan proceeds on a specified event such as deposit of all earnest money, the attorney must honor that. Absent such an instruction, a closing might be accomplished without the attorney receiving or disbursing some funds, in which case the attorney should advise the client that he cannot guarantee proper handling of all the money and should identify the risk that the party holding earnest money might disburse before the title is updated and the deed and deed of trust recorded.

On settlement-statement certifications, the opinion stated that an attorney must scrupulously document the handling of trust funds under Rule 10.2(d), and that if the attorney does not handle all funds, it is prudent to carefully qualify statements on the settlement statement about the attorney's responsibility and the basis of the attorney's knowledge, and to obtain receipts for payments made outside closing that are reflected on the statement. Finally, on charging the seller, the opinion concluded that in a typical residential transaction it is not inappropriate for the buyer's closing attorney to negotiate a fee from the seller for legal services rendered to the seller incident to closing, but only where Rule 5.1(a) on conflicts can be satisfied and the fee is negotiated well in advance of closing.

Currency note

This opinion was issued in 1990, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct, and the trust-account provisions it applies (Rule 10.2(E), 10.2(d)) have since been renumbered and revised; the editor's note directs readers to RPC 191 for additional guidance on disbursing against provisional credit. 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: Must a closing attorney collect earnest money in certified funds?

A: No. The opinion concluded the attorney may disburse against provisionally credited funds when reasonably believing the deposit is virtually certain to be honored and the attorney could cover the trust checks if it is dishonored.

Q: Must the closing attorney handle all funds in the transaction?

A: Not absent instruction. The opinion concluded the attorney must follow client and lender instructions, but where none requires it, a closing may proceed without the attorney handling some funds, with appropriate warning to the client.

Q: Can the buyer's closing attorney charge the seller a fee?

A: The opinion concluded that in a typical residential transaction the buyer's attorney may negotiate a fee from the seller for legal services to the seller, but only if the conflict rule (Rule 5.1(a)) is satisfied and the fee is negotiated well before closing.

Background and rules framework

The opinion applied the North Carolina trust-account rules, Rule 10.2(E) (following client instructions on entrusted money) and Rule 10.2(d) (documenting trust funds), corresponding to Model Rule 1.15, together with Rule 5.1(a) on conflicts (corresponding to Model Rule 1.7) for the buyer's-attorney-charging-the-seller question. The analysis distinguishes the better practice from what the Rules absolutely compel.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 10.2(E) (following the client's instructions on entrusted funds)
• North Carolina Rule 10.2(d) (documenting the handling of trust funds)
• North Carolina Rule 5.1(a) (conflicts of interest; consent after disclosure)
• MR 1.15 (safekeeping property); MR 1.7 (conflict of interest)

Other opinions cited:

• North Carolina CPR 358 (disbursing against provisionally credited funds)
• North Carolina RPC 44 (lender conditioning disbursement on a specified event)
• North Carolina RPC 191 (additional guidance on disbursing against provisional credit)

See also

• NC Ethics Op. RPC 191: disbursement on provisionally credited trust funds
• NC Ethics Op. RPC 127: conditional delivery of settlement proceeds

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-86/

Original opinion text

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

Editor's Note: See RPC 191 for additional guidance on disbursing against provisional credit.

Inquiry #1:

Must the closing attorney collect earnest money held in the trust accounts of real estate agents or other attorneys in the form of certified funds?

Opinion #1:

No. While it is certainly the better practice for the closing attorney to issue trust account checks only against collected funds, CPR 358 recognized that under certain circumstances such checks may be drawn against funds which though uncollected have been provisionally credited to the attorney's trust account by the financial institution in which the trust account is maintained. A closing attorney should disburse against provisionally credited funds only when he or she reasonably believes that the underlying deposited instrument is virtually certain to be honored when presented for collection. In addition, an attorney should take care not to disburse against uncollected funds in situations where the attorney's assets or credit would be insufficient to fund the trust account checks in the event that a provisionally credited item is dishonored.

Inquiry #2:

Must the closing attorney request that all earnest money be entrusted to him or her prior to closing?

Opinion #2:

Again it would appear that the better practice, which would involve the closing attorney's receipt and disbursement of all funds involved in the transaction, is not absolutely compelled by the Rules of Professional Conduct. An attorney does have an absolute obligation under Rule 10.2(E) to follow his client's instructions relative to the money which is entrusted to him or her. If, as was the case in RPC 44, the lender conditions the disbursement of loan proceeds upon some clearly specified event, such as the deposit in the attorney's trust account of all earnest money, the attorney would be obliged to honor that instruction and to insist upon the entrustment prior to proceeding further with the closing. If, however, the closing attorney receives no such instruction, it is conceivable that a closing could be accomplished in which some funds pertaining to the transaction are never received or disbursed by the closing attorney. In such situations the attorney should certainly take care to advise the client that he or she cannot guarantee the appropriate handling of all the money and in particular should identify for the client the risk that the party holding the earnest money might disburse prior to the attorney's updating the title and recording the deed and deed of trust.

Inquiry #3:

And in relation to the above, if the closing attorney does not require that all earnest money come in at closing, is he or she making potentially false certifications on the HUD Settlement Statement if it shows the earnest money as a credit against the payment of commissions or sales proceeds?

Opinion #3:

An attorney must, of course, be scrupulous in documenting his or her handling of trust funds (Rule 10.2(d)). If an attorney does not handle all funds incident to a real estate transaction which he or she is closing, it would certainly be prudent to carefully qualify any statements appearing on the settlement statement relative to the attorney's responsibility for the discharge of certain obligations and the quality of the attorney's knowledge relative to matters set forth only upon information and belief. As a practical matter, the attorney should obtain receipts from any persons or entities to whom payments have been made outside of closing if such are to be reflected upon the closing statement.

Inquiry #4:

Can the closing attorney retained by the buyer charge the seller a fee for doing the closing and handling certain matters for the seller that are not included in deed preparation? For example, after agreeing to handle a closing for Buyer A, the closing attorney pays off the seller's loan and must spend several hours retrieving the "paid and satisfied" note and deed of trust from seller's former bank in order to clear the title and have title insurance issued on behalf of Buyer A. Can the closing attorney charge a "closing fee?" If the answer to this question is yes, what kind of notification to or agreement with seller (and buyer) would be required?

Opinion #4:

In the typical residential transaction, it would not be inappropriate for the closing attorney who has been employed by the buyer to negotiate with the seller for the payment of a fee by the seller for legal services rendered on behalf of the seller incident to the closing. Any such contracts for legal services should be executed only where the provisions of Rule 5.1(a) can be satisfied relative to potential conflicts of interest and must be negotiated well in advance of closing.