Ezel / Ethics Opinions / NYSBA
NYSBA January 18, 2018

Can a lawyer appointed individually as a foreclosure referee deposit sale proceeds into the law firm's IOLA account?

Short answer: Yes. Serving as a foreclosure referee is incident to the practice of law, so Rule 1.15 applies. The attorney/referee may deposit third-party sale proceeds into the firm's IOLA or special account, or one in the lawyer's own name; either way the funds must sit in a special account separate from operating funds.

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This page answers the general question as of 2018. Ezel answers yours: whether it's allowed on your facts, under the current New York Rules of Professional Conduct, with citations.

Currency note: this opinion is from 2018
Subsequent statutory amendments, court decisions, or later opinions or rule amendments may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
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About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked on this page) is the authoritative source for any reliance.

Plain-English summary

An attorney is sometimes appointed individually (not the firm) as a referee to conduct foreclosure sales under Part 36 of the Rules of the Chief Judge. When no bank representative is present, the referee ends up holding sale proceeds owed to a third party. The attorney wants to deposit those excess funds into the firm's IOLA account, but the firm hesitates because only the attorney, not the firm, was appointed referee.

The committee opines only on the Rules, not on whether the Judiciary Law or Part 36 address the question; if law is to the contrary, it governs. Under Rule 1.15(b)(1), a lawyer holding funds belonging to another "incident to the lawyer's practice of law" must keep them in a New York special account, held in the lawyer's own name or in the name of the lawyer's firm. The committee concludes that serving as a foreclosure referee is "incident to the lawyer's practice of law" even though non-lawyers may also serve, citing prior opinions applying the Rules to lawyers acting as referees (N.Y. State 924, 893) and as mediators (N.Y. State 979). Courts often name lawyers for this work because familiarity with the required steps is integral to it.

It follows that the third-party funds must be safeguarded in a special account separate from the firm's business accounts. Rule 1.15(a) allows such funds to be held either in the lawyer's own name or in the firm's name, so the referee may place them in the firm's IOLA account (and the firm may accept them) or may set up a special account in the referee's own name. A firm's own rules might bar individual special accounts, but none was reported here. Whichever option is chosen, Rule 5.1(a) makes the firm and its members responsible for reasonable efforts to ensure proper maintenance of the accounts.

In practice

Under this opinion, a lawyer appointed individually as a foreclosure referee who holds third-party sale proceeds may deposit them in the firm's IOLA or special account, or in a special account in the lawyer's own name, as long as the funds are kept in a special account separate from operating funds, because the work is incident to the practice of law and Rule 1.15 applies. The lawyer is not required to use the firm's account but may, and the firm may accept the funds. Under Rule 5.1(a), the firm and its members must make reasonable efforts to ensure the accounts are properly maintained. Whether the Judiciary Law or Part 36 impose additional requirements is a question of law the committee did not decide.

Common questions

Q: Can the referee use the firm's IOLA account when only the lawyer was appointed?

A: Yes. Rule 1.15(a) lets the funds be held in the lawyer's name or the firm's name, so the referee may deposit them in the firm's IOLA account and the firm may accept them (Opinion 1143 ¶ 8).

Q: Does Rule 1.15 even apply to a referee, since non-lawyers can serve?

A: Yes. The committee finds serving as a foreclosure referee is incident to the practice of law, so Rule 1.15 applies even though non-lawyers may also serve (¶ 7).

Q: Must the funds be segregated from the firm's operating account?

A: Yes. Third-party funds must be held in a special account separate from the firm's business or operating accounts (¶¶ 8, 10).

Background and rules framework

The opinion applies Rule 1.15 (Model Rule 1.15), particularly Rule 1.15(b)(1) and (a) on holding funds belonging to another in a special account "incident to the lawyer's practice of law," with IOLA accounts as one type of special account under Judiciary Law section 497, and Rule 5.1(a) (Model Rule 5.1) on a firm's responsibility to ensure compliance.

Citations and references

Rules of Professional Conduct:

  • New York Rule 1.15(a), (b)(1) (Model Rule 1.15): special accounts for funds of another
  • New York Rule 5.1(a) (Model Rule 5.1): firm responsibility to ensure compliance

Statutes:

  • Judiciary Law section 497: IOLA accounts

Other opinions cited:

  • N.Y. State 924 (2012); N.Y. State 893 (2011): lawyers acting as foreclosure referees are subject to the Rules
  • N.Y. State 979 (2013): lawyers acting as mediators may be subject to the Rules

See also

Source

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