Must a Pennsylvania lawyer run real estate settlement funds through an IOLTA account?

Plain-English summary

The opinion explains that Pennsylvania's IOLTA program was created by a July 17, 1996 Order of the Pennsylvania Supreme Court amending Rule 1.15. It concludes that Rule 1.15 defines "Rule 1.15 Funds" to include funds a lawyer receives from a client or third person in connection with a client-lawyer relationship or while acting as an escrow, settlement, or other agent, and that "Pa.R.P.C. 1.15 does not distinguish between funds received by an attorney while providing legal services to clients and funds received by an attorney while providing real estate settlement services." So "when lawyers receive real estate settlement funds, those monies are by definition funds of others." The opinion notes that IOLTA Rule 104(h)(ii) confirms that "funds generated from real estate closings are Rule 1.15 Funds" and generally qualified funds.

The key test the opinion identifies is signatory authority: "if a lawyer is an authorized signatory on a bank account into which settlement proceeds are deposited, then the attorney must designate the account as an IOLTA account." The same logic applies to affiliated entities; where the lawyer has signatory authority over an affiliated third party's account, "the IOLTA rules apply," but where the lawyer holds only an ownership interest with no signatory authority, the IOLTA requirements do not apply.

The opinion qualifies the obligation under Rule 5.7 for separate nonlegal businesses, such as a title agency owned by the lawyer. Where nonlegal services are not distinct from legal services, the lawyer must make a reasonable effort to avoid any misunderstanding about whether the recipient is receiving the protection of a client-lawyer relationship. If the lawyer knows or reasonably should know the recipient does not believe they are receiving that protection, for example because the recipient was carefully advised under Rule 5.7(d), the settlement funds do not have to be deposited into an IOLTA account.

In practice

Under this opinion, a Pennsylvania lawyer who is an authorized signatory on the account receiving real estate settlement proceeds must designate that account as an IOLTA account, because the proceeds are Rule 1.15 funds. The opinion holds that the requirement turns on signatory authority rather than the legal-versus-settlement character of the work, and that Rule 5.7 can lift the IOLTA requirement when the funds are received through a separate nonlegal business and the recipient has been properly advised that no client-lawyer relationship protection applies.

Common questions

Q: Are real estate closing funds I handle "client funds" under Rule 1.15?

A: Yes. The opinion concludes such funds "are by definition funds of others" within Rule 1.15, citing IOLTA Rule 104(h)(ii) that "funds generated from real estate closings are Rule 1.15 Funds."

Q: What makes the IOLTA requirement apply to me?

A: Signatory authority. The opinion concludes that if a lawyer is an authorized signatory on the account into which settlement proceeds are deposited, the account must be designated IOLTA.

Q: What if the funds go through a title company I own?

A: The opinion applies Rule 5.7: if the lawyer has signatory authority the IOLTA rules apply, but if the recipient has been carefully advised under Rule 5.7(d) that no client-lawyer protection applies, the funds need not be deposited into IOLTA.

Q: Does it matter that I was doing settlement work rather than legal work?

A: No. The opinion concludes Rule 1.15 "does not distinguish" between funds received providing legal services and funds received providing real estate settlement services.

Background and rules framework

The opinion interprets Pennsylvania Rule of Professional Conduct 1.15 (safekeeping property and the IOLTA requirement) and Rule 5.7 (responsibilities regarding nonlegal services, including 5.7(d)), together with IOLTA Rule 104(h)(ii). Pennsylvania Rule 1.15 governs the trust-account obligation; Rule 5.7 tracks ABA Model Rule 5.7.

Citations and references

Rules of Professional Conduct:

• Pa.R.P.C. 1.15, including Comment [1]; trust-account and IOLTA requirement
• Pa.R.P.C. 5.7, including 5.7(d) and Comment [8]; ABA Model Rule 5.7

Other authorities cited:

• Rule 104(h)(ii), Rules for Interest on Lawyers Trust Accounts: real estate closing funds
• July 17, 1996 Order of the Pennsylvania Supreme Court: creation of the IOLTA program

See also

• PA Bar Ethics Op. 2022-300: Flat, Earned Upon Receipt, and Non-Refundable Fees
• ABA Formal Op. 475: Safeguarding Fees Subject to Division With Other Counsel

Source

• Landing page: PBA Ethics Opinions (Public)
• Original PDF: F2022-200.pdf