Ethics Hotline & Opinions

ETHICS DOCKET NO. 1988-72

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MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 1988-72

Clients’ Attorney advancing funds on behalf of client in real estate transactions


You ask whether a lawyer is permitted to advance the lawyer's funds to pay an amount due by his client in a real estate transaction. Rule 1.8(e) of the Maryland Rules of Professional Conduct prohibits a lawyer from providing financial assistance to a client in connection with pending or contemplated litigation with some exceptions not relevant to your inquiry. Therefore, should a particular real estate transaction not be related to pending or contemplated litigation, this Committee is of the opinion that advancement of lawyer's funds on behalf of his client is not prohibited by the Rules of Professional Conduct.

  Such an advance, however, is clearly subject to dictates of Rule 1.8 (a) which state:

""A lawyer shall not enter into a business, financial or property transaction with a client unless:

(1) the transaction is fair and equitable to the client; and

 (2) the client is advised to seek the advice of independent counsel in the transaction and is given a reasonable opportunity to do so.""

  This Committee is aware that the above opinion overturns a part of this Committee's earlier opinion at Ethics Docket 79-17. That opinion stated it is improper for an attorney to advance his own funds to the client for use in a real estate settlement because by doing so the attorney is making a loan to his client in a potentially litigable matter. However, whether the loan is involved in a ""potentially litigable"" matter is not the proper test. As above stated in Rule 1.8(e), the ethical limitation for an attorney loan to his client is drawn where litigation is pending or contemplated. To that extent, Ethics Docket 79-17 is corrected.

 

References: Ethics Docket 1979-17


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