Posted by T Jent on February 03, 2001 at 02:38:47:
It’s been a long time since my legal ethics course so I’m afraid I can’t give you a very good answer. It’s possible I’m mistaken, but I just remember a number of ethics provisions addressing entering business dealings with clients, and treating this practice as highly sensitive and prone to conflict since your fiduciary duty is always to them, and this is easily clouded when you yourself are deriving profit from the subject transaction. After all, it may seem, as you say, that you and your client’s interests are the same. But that’s how all business partnerships begin … until the inevitable day the partners disagree, and begin accusing each other of this and that impropriety. Again, I may be wrong. I would just check the ethical code to make sure I was playing it safe. Good Luck.
I’m an attorney who works for a corporate law dept. as my day job. After reading so many posts here for folks who want to use an attorney or need one but don’t seem to be willing or able to afford it (at least at the outset) - I thought of offering services to investors in exchange for an equity share or payment when the investor cashes out, or something else creative. Sort of like a bartering deal. That way I can get more involved in CRE part time, and meet some long-term clients.
For you other lawyers out there, I’ve been trying to think of an ethical problem here and can’t come up with anything, is there anything I’m missing? (I buy my own malpractice insurance, and am permitted by my employer to take cases outside my corporate practice.)
For you investors out there, I’d love to hear your feedback, what you think about the idea.
Of course, I’d only be able to do this if I liked the looks of a given project, but the “savings” on out-of-pocket costs could be as much as a couple thousand dollars depending on what was needed.
What’s the difference between - Posted by Brent_IL
Posted by Brent_IL on February 01, 2001 at 20:59:57:
No real answers, just questions. Why is your position different than that of a Realtor taking back his commission as a second mortgage note?
If the purchase contract obligated the seller to pay your fee, and your buyer assumed that obligation, and subsequently settled with you for a note or percentage of the property, would it make any difference?
Posted by Ben (NJ) on January 31, 2001 at 21:38:56:
I am a practicing attorney also and seem to recall some ethics opinions barring attorneys from entering into business deals with their clients. There is a potential conflict of interest. For example the deal may not be in your client’s best interest for some reason or another however, your own financial interest may cloud your objectivity. I would check this out thoroughly before proceeding.
Re: Bartering for Lawyer’s Services - Posted by JHyre in Ohio
Posted by JHyre in Ohio on January 31, 2001 at 14:22:24:
Sue C,
Interesting question. I’m in a very similar position…in-house counsel in a corporate tax dept., doing Lonnie’s on the side with family to boot. I have a very small outside client base which I’ve intentionally curtailed due to time limitations…something had to give, and it wasn’t gonna be family or MH investing and my employer isn’t very flexible, LOL. I don’t see any ethical issues as long as everything is in writing as CYA…in fact patent attornies seem to do this sort of thing frequently. In addition, most of the big-shot firms advising dot-coms and the like seem to demand options…though those are probably not worth much at this particular point in time! I’d say the ethical issues are overall akin to the usual contingency matters. Now, this sort of barter does lamentably constitute income for income tax purposes, and whatever you get in exchange gets taxed as ordinary income based on its FMV. That means you’ll likely be out of pocket to pay taxes…unless what you get constitutes a speculative profits-type interest. See Section 83 of the IRC, re deferred compensation.
I think you’re right, I’m simply talking about securing (with real proprerty)an obligation (to pay fees). I don’t see what would be a problem.
The legal ethics issue crops up for lawyers since if I am being paid a fee to “represent” others in drafting documents, but I have a stake in the deal too, then my judgement as a lawyer in putting the deal together can theoretically be clouded by my avaricious nature as I write the deal totally in my own favor. Yeah, like that would ever happen!!
I spoke with some other lawyers who said that while the above-type situation is really the concern, that full disclosure at the outset, since this is a business relationship, should provide coverage. That is, if the partner-client felt uncomfortable, they could have the terms reviewed by another lawyer, or not agree to the terms. But at least the possibility of conflict would be made right up front.
I’m not sure where the conflict of interest lies, I guess that was the root of my question: where is the conflict of interest? It seems we have the same interests! My understanding is that lawyers on large commercial deals do this all the time, their contribution is the value of their services.
If I structured it so that I was paid after the cash-out, or paid with a partnership stake or in shares, I am not clear on the difference, or why there is a conflict. Can you elaborate? And thanks in advance. I have a couple RE lawyers locally I’ve got calls in to also, to get their take.
