Can a lawyer appointed individually as a foreclosure referee deposit sale proceeds into the law firm's IOLA account?
NY State Bar Ethics Opinion 1143: Referee foreclosure funds in an IOLA account
Short answer: An attorney appointed as a referee to conduct foreclosure sales may deposit third-party sale proceeds into the IOLA or special account of the firm of which the attorney is a member, or into a special account in the attorney's own name; in either case the third-party funds must be held in a special account separate from the firm's operating funds.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York 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
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
- NY State Bar Op. 1142: Delivering electronic client files and charging to print them
- NY State Bar Op. 1146: Criminal-defense fees from a personal injury recovery
- NY State Bar Op. 1156: Securing a fee with a mortgage in a divorce matter
Source
- Landing page: https://nysba.org/ethics-opinion-1143/