My client can't afford to pay me, so I want to take a mortgage on the very property he's trying to win through an adverse possession claim as my contingent fee. Is that allowed?

Plain-English summary

The inquiring attorney's client is a homeless military veteran living in a self-made structure on land owned by someone else, who wants the attorney to bring an adverse possession claim. The attorney believes the claim has merit but is concerned the client cannot pay, and the case would cost more time and money than the attorney could justify taking pro bono. The attorney proposes to have the client sign a note and mortgage on the disputed property, valuing the fee at one-third of the property's tax-assessed or appraised value with a fair interest rate, recording the mortgage only if the client prevails, and requiring no payment until the client sells the property or dies; the client would also sign a contingency agreement covering any settlement.

The panel first addressed whether Rule 1.8(i), which generally bars a lawyer from acquiring a proprietary interest in the subject matter of litigation, permits this arrangement. Rule 1.8(i) allows two exceptions: a lien authorized by law to secure the lawyer's fee, and a reasonable contingent fee in a civil case. The panel found the proposed mortgage is a contingent fee arrangement consistent with the second exception, citing South Carolina Bar Ethics Advisory Committee Opinion 12-02 (2012) (a contingent ownership interest in property that is the subject of a quiet title action falls within the same exception), Connecticut Bar Association Committee on Professional Ethics Opinion 97-4 (1997) (a lawyer may take a security interest in a client's property that is the subject of the litigation to secure a fee), and Ohio Supreme Court Board of Commissioners on Grievances and Discipline Opinion 2004-8 (2004) (a lawyer may acquire a mortgage on a client's home to secure a fee where the home is the subject of the litigation).

Because acquiring a mortgage on a client's property is also a business transaction, the panel turned to Rule 1.8(a), which requires that the transaction and its terms be fair and reasonable, fully disclosed in writing the client can understand, that the client be advised in writing of the desirability of independent counsel and given a reasonable opportunity to obtain it, and that the client give informed written consent to the essential terms and the lawyer's role. The panel specified that in this case the mortgage document itself must state that its purpose is to secure the attorney's fee if the client prevails, that it will be recorded only upon the client prevailing, and that no payment is due unless and until the client sells the property or dies. The panel added that the attorney must also comply with Rule 1.5's written fee and reasonableness requirements, and must confirm the client has the present mental capacity to understand and enter into the arrangement.

In practice

The opinion holds that a lawyer may structure a contingent fee as a mortgage or other security interest in the very property that is the subject of a client's litigation, because Rule 1.8(i)'s contingent-fee exception covers such an arrangement, but only if the lawyer separately satisfies Rule 1.8(a)'s business-transaction safeguards (full written disclosure of fair terms, written advice to seek independent counsel, and informed written consent) and Rule 1.5's requirements that the fee be in writing and reasonable, and confirms the client has the capacity to enter into the arrangement.

Common questions

Q: Can I take a mortgage on the same property my client is trying to win in litigation, as payment for handling the case?

A: Yes, on these facts. The opinion holds Rule 1.8(i)'s exception for a reasonable contingent fee in a civil case permits acquiring a mortgage on the subject property as the fee.

Q: What extra steps does the Rules require beyond just agreeing to this with the client?

A: The opinion holds the lawyer must comply with Rule 1.8(a): the mortgage's terms must be fair and reasonable and fully disclosed in writing, the client must be advised in writing to consider independent counsel and given a reasonable chance to get it, and the client must give informed written consent to the terms and the lawyer's role.

Q: Does the mortgage need to spell out when it becomes due?

A: Yes. The opinion states the mortgage must include that its purpose is to secure the fee if the client prevails, that it will be recorded only if the client prevails, and that no payment is due unless the client sells the property or dies, per the terms this attorney proposed.

Background and rules framework

The opinion applies Rhode Island Rule 1.8(i), which bars a lawyer from acquiring a proprietary interest in the subject matter of litigation except for a lien authorized by law to secure fees or expenses, or a reasonable contingent fee in a civil case (Comment 16 traces the general bar to the common-law doctrines of champerty and maintenance). Because a non-monetary fee has the qualities of a business transaction (Rule 1.5, Comment 4), the opinion also applies Rule 1.8(a), governing business transactions and adverse pecuniary interests with a client, and Rule 1.5, governing fee agreements and reasonableness.

Citations and references

Rules of Professional Conduct:

• MR 1.8(i) (bar on acquiring a proprietary interest in litigation, with exceptions for fee liens and reasonable contingent fees)
• MR 1.8(a) (business transactions with a client; fairness, disclosure, independent counsel, informed consent)
• MR 1.5 (fees; written fee agreements and reasonableness) and Comment 4 (non-monetary fee arrangements as business transactions)

Statutes:

• None cited.

Cases:

• None cited.

Other opinions cited:

• South Carolina Bar Ethics Advisory Committee Op. 12-02 (2012): a contingent ownership interest in property subject to a quiet title action falls within Rule 1.8(i)(2)'s contingent-fee exception.
• Connecticut Bar Association Committee on Professional Ethics Op. 97-4 (1997): to secure a fee, an attorney may take a security interest in client property that is subject to the litigation in which the lawyer represents the client.
• Ohio Supreme Court Board of Commissioners on Grievances and Discipline Op. 2004-8 (2004): an attorney may acquire a mortgage on a client's home to secure a legal fee where the home is the subject of the litigation.

See also

• ABA Formal Op. 02-427: Contractual Security Interest Obtained by a Lawyer to Secure Payment of a Fee
• Alabama Ethics Op. 1990-86: Contingent fee, attorney lien, quantum meruit

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%2012-05.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

Final

Rhode Island Supreme Court Ethics Advisory Panel
Opinion No. 2012-05
Issued June 7, 2012

FACTS

The inquiring attorney proposes to accept a note and a mortgage as payment of
his/her attorney's fee. The inquiring attorney's client is a homeless military veteran. The
client has been living in a self-made structure on real property owned by another
individual, and has asked the inquiring attorney to represent him in an adverse possession
claim. The inquiring attorney believes the claim has merit but the inquiring attorney is
concerned about the client's ability to pay his/her attorney's fee. The inquiring attorney
states that the case would be beyond the cost and time that he/she could justify taking on a
pro bono basis.

The inquiring attorney proposes to have the client sign a note and a mortgage on
the property that is the subject of the adverse possession claim. The inquiring attorney
would value his/her fee at one-third the fair value of the property's tax assessment, or on
an independent appraisal, and charge a fair interest rate. He/she states that the mortgage
would not be recorded unless the client prevailed on the adverse possession claim; and that
he/she will not require the mortgage to be paid unless the client sells the property or the
client dies. The inquiring attorney will require the client to execute a contingency
agreement in the event that the client accepts an offer to settle the claim. The inquiring
attorney states that he/she does not want to seek payment through litigation.

ISSUES PRESENTED

The inquiring attorney asks whether he may accept from his/her client as payment
for his/her attorney's fee a mortgage on property that is the subject of an adverse
possession claim in which the inquiring attorney will represent the client.

OPINION

Rule 1.8(i) permits the inquiring attorney to provide for a contingent fee which
consists of the inquiring attorney's acquiring a mortgage on property that is the subject of
the client's adverse possession claim. In acquiring the mortgage, the inquiring attorney
must comply with the requirements of Rule 1.8(a) concerning disclosure, fairness, client
consent, and the client's opportunity to seek independent counsel. The inquiring attorney
must comply with the requirements of Rule 1.5.

Final Op. 2012-05
Page 2 of 4

REASONING

The Rules of Professional Conduct permit lawyers to accept non-monetary property
as payment for legal services. Comment [4] to Rule 1.5 states:

[4] ....A lawyer may accept property in payment for services,
such as an ownership interest in an enterprise, providing this does
not involve acquisition of a proprietary interest in the cause of
action or subject matter of the litigation contrary to Rule 1.8(i).
However, a fee paid in property instead of money may be subject
to the requirements of Rule 1.8(a) because such fees often have the
essential qualities of a business transaction with the client.

In accepting non-monetary property as payment, a lawyer must comply with Rule
1.8 entitled "Conflicts of interest: Current clients; Specific rules," specifically Rule 1.8(a)
and Rule 1.8(i). Rule 1.8(a) sets forth requirements that an attorney must meet when
entering into a business transaction with a client or when acquiring a security interest
adverse to a client. Rule 1.8(i) prohibits a lawyer from acquiring a proprietary interest in
the subject matter of litigation subject to two exceptions related to securing legal fees and
costs. The threshold question in this inquiry is whether Rule 1.8(i) permits the inquiring
attorney to provide for a contingent fee which consists of the inquiring attorney's acquiring
a mortgage on property that is the subject of the client's adverse possession claim. The
Panel believes that it does. Rule 1.8(i) states:

(i) A lawyer shall not acquire a proprietary interest in the
cause of action or subject matter of litigation the lawyer is
conducting for a client, except that the lawyer may:

(1) acquire a lien authorized by law to secure the lawyer's fee or
expenses; and

(2) contract with a client for a reasonable contingent fee in a civil
case.

Comment [16] to Rule 1.8 explains:

[16] Paragraph (i) states the traditional general rule that lawyers
are prohibited from acquiring a proprietary interest in litigation.
Like paragraph (e), the general rule has its basis in common law
champerty and maintenance and is designed to avoid giving the
lawyer too great an interest in the representation. In addition, when
the lawyer acquires an ownership interest in the subject of the
representation, it will be more difficult for a client to discharge the
lawyer if the client so desires. The Rule is subject to specific
exceptions developed in decisional law and continued in these
Rules. The exception for certain advances of the costs of litigation

Final Op. 2012-05
Page 3 of 4

is set forth in paragraph (e). In addition, paragraph (i) sets forth
exceptions for liens authorized by law to secure the lawyer's fees
or expenses and contracts for reasonable contingent fees.

In South Carolina Bar Ethics Advisory Committee Opinion 12-02 (2012), the South
Carolina Ethics Advisory Committee concluded that acquiring a contingent interest in real
property that was the subject of the litigation was not prohibited by Rule 1.8(i). The issue
presented was whether an attorney could provide for a contingent fee in a quiet title action
in which the contingency fee consisted of the attorney's partial ownership of the subject
property. Id. The Committee stated that the contingent ownership interest in the property
was a contingent fee that was consistent with the exception in Rule 1.8(i)(2). Id.

In the instant inquiry, the inquiring attorney proposes a contingent fee which
consists of his/her acquiring a mortgage on the property that is the subject of the client's
adverse possession claim. The proposal is a contingent fee arrangement. The Panel is of
the opinion that the contingent security interest in the subject property is consistent with
the exception set forth in Rule 1.8(i)(2), and therefore concludes that the inquiring attorney
may accept a mortgage on the property that is the subject of the client's cause of action as
payment for his/her attorney's fee. See Connecticut Bar Association Committee on
Professional Ethics Op. 97-4 (1997) (to secure a fee, attorney may take security interest in
client property which is subject to litigation in which lawyer represents the client); Ohio
Supreme Court Board of Commissioners on Grievances and Discipline Op. 2004-8 (2004)
(attorney may acquire mortgage on client's home to secure legal fee where the home is the
subject of litigation).

Having concluded that Rule 1.8(i) permits the inquiring attorney to acquire a
contingent security interest in the subject property, the Panel turns now to Rule 1.8(a).
Acquiring a mortgage on a client's property is a business transaction governed by Rule
1.8(a). The Rule states:

Rule 1.8. Conflict of interest: Current clients: Specific rules.

(a) A lawyer shall not enter into a business transaction with a client
or knowingly acquire an ownership, possessory, security or other
pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the
interest are fair and reasonable to the client and are fully disclosed
and transmitted in writing in a manner that can be reasonably
understood by the client;

(2) the client is advised in writing of the desirability of seeking and
is given a reasonable opportunity to seek the advice of independent
legal counsel on the transaction; and

(3) the client gives informed consent, in a writing signed by the
client, to the essential terms of the transaction and the lawyer's role

Final Op. 2012-05
Page 4 of 4

in the transaction, including whether the lawyer is representing the
client in the transaction.

Rule 1.8(a) does not apply to ordinary fee arrangements between a lawyer and
client, but when a lawyer acquires an interest in a client's business or other non-monetary
property as payment of all or part of a legal fee, the requirements of the Rule must be met.
Rule 1.8, Comment 1. Arrangements for fees to be paid in non-monetary property have the
essential qualities of a business transaction with a client. Rule 1.5, Comment 4. Thus, a
lawyer taking a security interest in a client's property must comply with the requirements
of Rule 1.8(a) concerning disclosure, fairness, client consent, and the client's opportunity to
seek independent counsel.

To comply in the instant inquiry with the requirements of disclosure and fairness of
Rule 1.8(a)(1), the mortgage must include the terms of the arrangement including that its
purpose is to secure the inquiring attorney's fees if the client prevails in the adverse
possession claim; that the mortgage will be recorded only if the client prevails in the
adverse possession matter; and that even if the client prevails, no payments are due until the
client sells the property or the client dies.

In addition to Rule 1.8, the inquiring attorney must comply with the written fee
requirements of Rule 1.5 ("Fees.") Additionally, the fee agreement is subject to the
requirement of reasonableness. See Rule 1.5. Finally, the inquiring attorney must
determine that the client has the present mental capacity to understand and to enter into the
proposed arrangement.

The Panel concludes (a) that Rule 1.8(i) permits the inquiring attorney to provide
for a contingent fee which consists of the inquiring attorney's acquiring a mortgage on
property that is the subject of the client's adverse possession claim; (b) that in acquiring the
mortgage, the inquiring attorney must comply with the requirements of Rule 1.8(a)
concerning disclosure, fairness, client consent, and the client's opportunity to seek
independent counsel; and (c) that the inquiring attorney must comply with the
requirements of Rule 1.5.