My firm has an old real estate escrow account that hasn't been touched since 2008, and we're not sure how much of the $122,000 in it is ours versus clients' or third parties'. Can we just close it out and move the money?

Plain-English summary

The inquiring attorney's firm opened an escrow account in 1997 as its primary account for real estate loan closings and related real estate matters, and stopped using it in 2008 when the firm opened a new escrow account for real estate closings going forward. The old account still holds $122,000. The attorney believes $52,000 of that "belongs to others," while the rest represents either the firm's fees from past closings or money left over from title company audits that over-funded real estate files, but the firm is not certain of the exact breakdown. Complicating matters, the firm changed financial software in 2004 and again in 2008, and the 2008 conversion inadvertently deleted the financial records for years before 2004.

The panel declined to resolve whose money is whose, explaining that determining entitlement to the funds is a substantive law question outside the panel's jurisdiction over legal ethics and discipline, and that it likewise has no jurisdiction to address the firm's past noncompliance with Rule 1.15. Instead, the panel addressed what the firm must do with the funds while ownership remains unresolved: the entire $122,000 must stay in an IOLTA account under Rule 1.15 until the ownership questions are answered. Once the firm establishes that a portion belongs to it, that portion may move to the firm's business account. As for the rest, the firm must keep those funds in IOLTA until it identifies the persons or entities entitled to them, at which point it must disburse the funds to those persons or entities. The panel suggested the firm make reasonable efforts to reconstruct the account's history, including obtaining archived statements from its financial institutions and considering software or computer forensic audits, given that the 2008 data deletion makes tracing the funds a serious challenge.

In practice

The opinion holds that funds in a dormant escrow account of uncertain ownership must remain in an IOLTA account under Rule 1.15 until the firm determines who is entitled to each portion, and that only the funds a firm has established are its own may be moved to the firm's business account; the remainder must stay in IOLTA until the persons or entities entitled to it are identified and paid. The opinion does not decide the underlying ownership questions, which it treats as substantive law outside its jurisdiction, and does not address the firm's past recordkeeping lapses under Rule 1.15.

Common questions

Q: We have an old, unused escrow account and aren't sure how much of the money is the firm's. Can we just transfer it to the firm's operating account?

A: No. The opinion holds the firm must keep the entire amount in an IOLTA account until it determines which portions belong to the firm and which belong to others; only funds the firm has established are its own may be moved to the firm's business account.

Q: Will the panel tell us how to figure out who owns what portion of the money?

A: No. The opinion states that whether and to what extent the firm is entitled to the funds is a substantive law question outside the panel's ethics jurisdiction, though it notes obtaining archived financial statements and considering software or forensic audits as ways to reconstruct the account's history.

Q: What happens to the funds that turn out to belong to former clients or other third parties?

A: The opinion holds those funds must remain in an IOLTA account until the firm identifies the persons or entities entitled to them, at which point the firm must disburse the funds to those persons or entities.

Background and rules framework

The opinion applies Rhode Island Rule 1.15 (Safekeeping Property), which requires a lawyer to hold client and third-party funds in a trust account separate from the lawyer's own property until entitlement is established. The panel's analysis is limited to the trust-accounting obligation while ownership is unresolved; it expressly does not reach the underlying substantive-law question of who owns the disputed funds, or any past compliance failures under Rule 1.15, both of which it treats as outside its jurisdiction.

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping property; funds of uncertain or disputed ownership held in IOLTA until entitlement is resolved)

Statutes:

• None cited.

Cases:

• None cited.

Other opinions cited:

• None cited.

See also

• Rhode Island Ethics Advisory Panel Op. 2011-02: Disbursement of Disputed Settlement Funds Claimed by a Third Party, and Continued Representation of Two Clients With an Unrelated Debt Dispute Between Them
• Alabama Ethics Op. 1988-92: Unclaimed client trust funds, escheat to state
• Alabama Ethics Op. 1990-08: Unclaimed client trust funds, lawyer's obligation to ascertain true owner, escheatment of unclaimed funds which appear to be lawyer's fees to lawyer

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%202011-04.pdf

Original opinion text

Final

             Rhode Island Supreme Court Ethics Advisory Panel
                   Opinion No. 2011-04 Request No. 990
                         Issued November 10, 2011

FACTS

   The inquiring attorney seeks an advisory opinion about the entitlement to and the

disbursement of funds in an escrow account that was opened in 1997 and which has not
been used since 2008. The account was used by the inquiring attorney's law firm as the
primary escrow account for funds related to closing real estate loans and other real estate
matters.

    The inquiring attorney is not certain who is entitled to the funds. However, he/she

believes that funds totaling $52,000 "belong to others," and the remainder represents either
fees of the firm from real estate closings, or monies of the firm from over funding real
estate files due to title company audits. The inquiring attorney states that the firm was
busy closing real estate transactions and disbursing payoffs and other time sensitive
disbursements, and did not take the time to disburse funds belonging to the firm. He/she
further represents that due to the rapid pace of business, there was a lack of regular
reconciliation of the account. The firm converted from one financial software product to
another product in 2004, and again in 2008. At the conversion in 2008, financial
information related to years prior to 2004 was inadvertently deleted. In 2008, the firm
opened a separate escrow account for real estate escrows going forward, and kept open the
original escrow account containing funds related to prior real estate transactions. The firm
wants to close the original escrow account which now contains $122,000.

ISSUE PRESENTED

   The inquiring attorney seeks the Panel's opinion about the entitlement to and

disbursement of funds in an unused escrow account containing $122,000, a portion of
which he/she believes belongs to the law firm, and a portions of which belong to others.

OPINION

    The law firm must maintain the funds in an IOLTA account until the questions of

ownership of the funds are resolved. At such time as it is determined that the law firm is
entitled to certain of the funds, the firm may disburse those funds to the firm's business
account. As to the remaining funds, the inquiring attorney must maintain them in an
Final Op. 2011-04
Page 2 of 2

IOLTA account until persons or entities who are entitled to the funds are identified, at
which time the law firm must disburse the funds to those persons or entities.

REASONING

    Whether and to what extent the inquiring attorney's law firm is entitled to the funds

in the unused escrow account are substantive law questions outside the area of legal ethics
and discipline, and outside the jurisdiction of the Panel. Further, it is outside the purview
of the Panel's jurisdiction to address past noncompliance with obligations under Rule 1.15
of the Rules of Professional Conduct entitled "Safekeeping property" or other Rules of
Professional Conduct.

    The inquiring attorney must make all reasonable efforts to establish which funds

belong to others and which funds are the property of the inquiring attorney. The
unfortunate deletion of financial information relating to the funds in the original escrow
account presents a serious challenge. Obtaining archived financial statements from the
firm's financial institutions, and software and computer forensic audits are suggestions.

     Until the questions of what portion of the funds belong to the law firm, and what

portion belongs to others are resolved, the law firm must maintain the $122,000 in an
IOLTA account pursuant to Rule 1.15 of the Rules of Professional Conduct. At such time
that it is determined that the law firm is entitled to certain of the funds, the law firm may
disburse those funds to the firm's business account. As to the remaining funds, the
inquiring attorney must retain them in an IOLTA account until the persons or entities who
are entitled to the funds are identified, at which time the attorney must disburse the funds
to those persons or entities.