Opinion #144. Taking Security Interest in Client Property Unrelated to Litigation

Issued by the Professional Ethics Commission

Date Issued: August 22, 1994

Question

An attorney often represents indigent or cash poor clients in civil or criminal matters. The attorney wishes to know if he may ethically take a promissory note and secure the note by a mortgage or security interest in property of the client to insure the payment of legal fees, if the property is unrelated to the litigation on which the attorney has been retained.

Opinion

Bar Rule 3.4(f) provides:

(1) A lawyer shall not knowingly acquire a property or pecuniary interest adverse to a client, or enter into a business transaction with a client, unless:

(A) The transaction and terms in which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted to the client in manner and terms which should have reasonably been understood by the client;
(B) The client is advised and given a reasonable opportunity to seek independent professional advice of counsel of the client’s choice on the transaction; and
(C) The client consents in writing thereto.

Rule 3.7(c) provides in part:

A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of the litigation the lawyer is conducting for the client....

Since the facts of the Request specifically state that the property in which the security is given is not the subject of the representation, Rule 3.7(c) is not implicated. See Opinion 64. Where, however, the security interest is in property that is the subject of a pending or contemplated suit, for example a mortgage on real estate which is the subject of a title dispute, then such mortgage would be impermissible. See Opinion 92.

However, even when permitted, Rule 3.4(f) requires that the terms of the note and security interest must be fair and reasonable and must otherwise be executed by the client in circumstances which comply with that Rule, including that the client be advised to seek independent professional advice with respect to the note, security agreement or mortgage. No separate written consent is required under sub‑section (1) (C) if the client executes a note and written security interest or mortgage.


Enduring Ethics Opinion