Ethical Considerations When Practicing New York Real Estate Law
Approximately 2 minutes reading time. The following tips discuss particular features of real estate law that present ethical quagmires, examples of attorneys who have fallen into these traps, and best practices for avoiding ethical missteps.
1. Deals Involving Large Sums of Money
All rules referenced are taken from the New York Rules of Professional Conduct (“RPC”).
Lawyers often hold clients’ funds during a transaction. This money must be held in an attorney trust account, and cannot be deposited or paid from an attorney operating account. Depositing client funds from an operating account constitutes commingling of funds in violation of Rule 1.15. Commingling funds can result in the suspension of your license or your disbarment.
If a check is bounced from an attorney trust account—for any reason—an investigation is automatically opened with the Grievance Committee.
When lawyers are entitled to a share of client money, the attorney must first deposit the funds to their trust account, then pay themselves out of that account.
2. Multiple Parties With Multiple Roles
Real estate transactions involve a lot of moving parts: buyers, sellers, attorneys, brokers, etc. Conflicts of interest can arise when one lawyer represents multiple parties or assumes multiple roles in a transaction. For example, Rule 1.8 imposes strict disclosure and consent requirements before entering into a business transaction with a client, which could include property investments, loans or conducting non-legal work connected to a real estate matter.
In In re Goodman, 60 N.Y.S.3d 454 (N.Y. App. Div. 2017), an attorney was suspended for one year for, inter alia, brokering a sale while representing an intermediary buyer as an attorney. Even though the client had waived any conflict of interest, the court found that the risk that the attorney’s professional judgment would be affected was too great, even with the client’s consent.
Delegation of tasks can also be problematic. An attorney was recently suspended two years for allowing his paralegals to conduct closings and sign his name on contractual and financial documents without his supervision. In re Rozenzaft, 143 A.D.3d 65, 68-69 (N.Y. App. Div.). As a result, one of the paralegals was able to commit fraud undetected. Id.
In some cases, a lack of communication is, itself, grounds for discipline. Where a case was stalled, in part because of the slow pace of the court system, an attorney was nonetheless publicly censured for failing to keep the client informed during this period. In re Prignoli, 143 A.D.3d 83 (N.Y. App. Div. 2016).
Clients who feel “in the loop” are more satisfied with their legal representation. Clients who feel ignored might take out their frustration by leaving a negative review online or filing a complaint with the Grievance Committee. Even if no misconduct occurred, a disciplinary investigation is an avoidable nuisance.
Our advice: maintain good and frequent communication with your clients.
Note: Many of these tips are applicable and advisable no matter where you practice; however, the rules and case law described are specific to New York. This article is not legal advice and does not establish an attorney-client relationship. If you have any questions or concerns determining what is the ethical course of action, consult an attorney who is well-versed in matters of legal ethics.
Lew Tesser is an attorney in private practice in New York, NY. He is the former president of the New York County Lawyers’ Association, the editor-in-chief of “The New York Rules of Professional Conduct (Oxford University Press) and a Fellow of the American Bar Association.
If you have any comments or suggestions, let us know here.