Can a lawyer lend a matrimonial client money to bid on the marital home being sold under an equitable distribution decree?

Plain-English summary

A lawyer proposed to lend money to, or guarantee a loan for, a matrimonial client so the client could bid competitively against the spouse to buy the marital home after an equitable distribution decree directed its sale, in an unfavorable real estate market where the wealthier spouse could otherwise buy the home at a bargain price. The loan would let the client either bid up the price the spouse paid (increasing the client's equitable share) or buy and keep the home. The committee concluded the loan would violate DR 5-103(A) and (B).

DR 5-103(B) bars a lawyer, while representing a client in contemplated or pending litigation, from advancing or guaranteeing financial assistance except for litigation expenses for which the client remains liable. The committee held a loan to buy the marital home is not a litigation expense, and that the sale of the home is an integral part of enforcing the equitable distribution decree, so the litigation has not concluded until the decree's terms are met. It relied on the line of opinions holding it improper for a lawyer to lend a client living expenses pending litigation, reasoning that a lawyer should not become a joint venturer with the client, and noting the concern is even stronger here because the loan would directly increase the client's recovery through financial pressure rather than legal entitlement. It added that ABA Informal Opinion 804 found it improper for an estate's attorney to bid on estate property absent a court-controlled sale, and that lending the client bidding money is the substantive equivalent of the lawyer bidding himself, which would be particularly improper if the lawyer's fee were contingent on the recovery.

The committee also found the loan would violate DR 5-103(A), which bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation (with exceptions for a fee lien and a reasonable contingent fee). The marital home is part of the subject matter of a matrimonial case, so a lawyer who lent money and took a security interest would acquire a proprietary interest; even without security, a loan extended to raise the property's price is a financial investment in the outcome that is the practical equivalent of a proprietary interest. The committee contrasted N.Y. State 550 (1983), which permits a lawyer to take a mortgage (not a deed) to secure a fee, because such a mortgage grants legal rather than financial assistance and does not give the lawyer an interest in the litigation's subject matter. It noted, without deciding, that Judiciary Law section 488 and First Department rules might also be implicated. The question was answered in the negative.

Currency note

This opinion was issued in 1983, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009 (the bar on financial assistance to a client and on acquiring a proprietary interest in the litigation now appears at Rule 1.8(e) and (i)). 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 lawyer lend a client money to bid on property in the lawsuit?

A: No. The committee held this is prohibited financial assistance in pending litigation under DR 5-103(B), because it is not a litigation expense.

Q: Why does the loan give the lawyer a proprietary interest?

A: The committee held the marital home is part of the subject matter of the matrimonial litigation, so lending money to raise its price (especially with security or a contingent fee) is the practical equivalent of a proprietary interest barred by DR 5-103(A).

Q: Is taking a mortgage to secure a fee treated the same way?

A: No. The committee distinguished N.Y. State 550 (1983), which allows a lawyer to take a mortgage to secure a fee, because that grants legal rather than financial assistance and does not give the lawyer an interest in the litigation's subject matter.

Background and rules framework

The opinion applied DR 5-103(A) (acquiring a proprietary interest in litigation) and DR 5-103(B) (advancing or guaranteeing financial assistance to a client). The closest current Model Rule analogue is Rule 1.8, in particular Rule 1.8(e) (financial assistance to a client) and Rule 1.8(i) (proprietary interest in the cause of action).

Citations and references

Rules of Professional Conduct:

• MR 1.8 (current clients: specific rules; financial assistance and proprietary interest)
• NY DR 5-103(A); DR 5-103(B)

Statutes:

• Judiciary Law section 488 (noted, not decided)

Other opinions cited:

• N.Y. State 550 (1983): a lawyer may take a mortgage, but not a deed, to secure a fee
• N.Y. State 133 (1970); N.Y. State 464 (1977): improper to lend a client living expenses pending litigation
• ABA Inf. 804 (1964): estate attorney bidding on estate property

See also

• NY State Bar Op. 550: Mortgage or deed as security for a legal fee
• NY State Bar Op. 567: Retaining lien and fee-dispute litigation
• NY State Bar Op. 570: Advance-fee payments and trust-account treatment

Source

• Landing page: https://nysba.org/opinion-553/