EAO Opinion 22-04 gives real estate lawyers guidance on non-negotiated checks

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How we did it back in the day

Ethics Advisory Opinion 22-04 addresses a trust accounting question from a real estate practitioner.

The underlying facts are: “Due to the nature of a residential real estate practice, Lawyer frequently issues relatively small dollar amount checks from Lawyer’s trust account to both clients and third parties. A number of these checks are not timely negotiated, resulting in ongoing trust accounting maintenance costs, including labor costs, stop-payment fees and mailing fees for uncashed trust account checks that require stop payments and/or reissuance and re-mailing to the payee.”

This is an age-old concern. When I was in private practice (150 years ago or so), our law firm’s excellent bookkeeper chastised me monthly about the $5.00 check issued for mortgage satisfactions that never seemed to get cashed.

The lawyer poses the following question to the Ethics Advisory Committee: “May Lawyer charge an amount to cover administrative costs associated with stop-payment fees and trust account check reissuance and re-mailing fees for checks that remain outstanding for more than thirty (30) days after issuance?”

Thankfully, the Committee responded affirmatively.

The opinion states that a lawyer may charge a check recipient an amount to cover administrative measures undertaken to resolve the outstanding check, which includes expenses incurred such as stop payment fees and postage fees, provided the amount charged is not unreasonable.

Comment 1 to Rule 1.5 provides, “A lawyer may seek reimbursement for the cost of services performed in-house…by charging an amount that reasonably reflects the cost incurred by the lawyer.” The Committee opined that the lawyer may charge an amount against the recipient’s check to obtain reimbursement for the same, provided the amount charged is not unreasonable. To collect on the amount charged, Lawyer may deduct the amount to be charged from funds that remain in trust after adequate steps have been taken to cancel, void, or otherwise nullify the previously issued check…”

The Committee imposed one limitation by stating that the amount to be charged is limited to the total amount of funds that were paid by the outstanding check.

This opinion may provide a small amount of assistance, but the administrative nightmare remains. Small checks that fail to be negotiated will remain a monthly quagmire. But this opinion may allow law firms to at least recoup a portion of the cost.

2 thoughts on “EAO Opinion 22-04 gives real estate lawyers guidance on non-negotiated checks

  1. Robert

    Is there a dollar amount that you think is a fair cut-off in which it is appropriate to charge for the expenses occurred? This is the situation I am thinking of: we issue a $15 – $20 (or less) check at closing to a client/3rd party vendor and they never cash it. 90+ days later, that check shows up on our reconciliation report and we reach out to the client/3rd party vendor, ask if the check was lost, and usually re-issue a 2nd check. After that, 6 months later, 2nd check is still not cashed.

    At that point, the result is typically that we either we cannot get the check in the correct person’s hands, or the amount is too small to bother with depositing. The time/expense incurred is far more than the actual check amount. My thought would be that anything under $20 is more than reasonable to charge for this effort – and the solution would be to offset that check and clear our ledger. Is there a dollar amount you that you think is fair to cut losses and move on?

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    • My opinion wouldn’t be worth much in this situation . Each law firm is going to have to decide reasonableness under the circumstances. I feel your pain, though, and appreciate that we now have this EAO to help.

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