This article presents a concept for locating, interviewing and retaining an attorney to advise and render services in real estate disputes confronting brokers.
Choosing the right one
A broker is faced with a real estate dispute requiring an attorney’s legal expertise.
The broker has never before sought out the advice of an attorney and is not at all sure how to go about selecting one.
What steps should he take to select a qualified, competent attorney? What law office procedure should he look for when first meeting with an attorney? What can he expect to encounter when retaining an attorney?
These questions are reviewed with suggestions and actions to be considered when seeking out and comparing the services of an attorney.
Selecting an attorney
To initiate the selection process, the broker should call several active real estate brokers in his locale and the locale of any litigation involved. They should be asked for the names of three or four real estate attorneys they are familiar with and would refer someone to for advice on real estate matters, especially of the type confronting the broker.
The broker should inquire into the different areas of real estate law each attorney appears to be engaged in, the types of cases they handle and the competence demonstrated by the attorney as seen by the brokers he contacts. Also helpful is the likelihood one attorney’s name is consistently recommended by the brokers contacted.
While attorney referral services and media advertising is helpful in the initial referral stage, it is difficult to obtain objective recommendations or criticism from these sources.
It may even be necessary to locate an out-of-area attorney who specializes in the particular type of legal situation confronting the broker.
In any case, two or more attorneys should be selected and a phone or office conference set up.
Before (and after) selecting an attorney to represent the broker, it is both proper and prudent to contact yet another attorney and hold a telephone conference to “brainstorm.” This would provide a second opinion – and possibly an additional or alternative advisor. The cost of conferencing with another attorney should be considered the premium paid for assurance the broker is on the right track.
A client’s expectations
When meeting with an attorney, the broker should consider many aspects of the attorney’s law office, including:
- the compatibility of the attorney’s personality with his own;
- the attorney’s competency and conversational skills;
- the efficiency and professionalism of the attorney’s work habits;
- the law office’s appearance (does it appear organized and well equipped?);
- the courtesy, productivity and helpfulness of the secretarial staff; and
- the competency of the attorney’s law clerks or legal assistants to follow up on fact investigation, legal research and minor details.
The initial conference
During the initial conference, the broker will discuss his situation as well as “interview” the attorney. This contact will determine whether or not the broker feels this attorney is “the right one” to retain.
Matters which should be discussed during the initial interview include:
- the attorney’s professional background and the legal disputes which make up his practice;
- the attorney’s previous experience with cases of the type involved;
- whether his practice regularly calls for his appearance in the court which will hear the broker’s case;
- the attorney’s initial assessment of the facts and laws controlling the case;
- the outlook or likelihood of prevailing in the case;
- the different procedural stages including negotiations, filing, discovery, trial and possible appeal;
- the potential liability exposure;
- whether the prevailing party can collect his attorney fees from the other party;
- the attorney’s hourly fee and required retainer deposit; and
- the estimated cost of handling the various stages of the case.
At the same time, the attorney will be deciding whether or not he wants to represent the broker.
Also, bearing on the broker’s decision to retain the attorney are factors including:
- the attorney’s own knowledge and experience with the particular type of case, and his rapport with the broker;
- whether or not the attorney believes he can obtain a favorable result for the broker; and
- whether the attorney has a conflict based on the attorney’s other cases and clients.
The broker must understand he will normally be billed for this initial consultation on a per hour basis.
Attorneys’ hourly rates generally range from $125-$300 per hour, depending on location and expertise. Any time spent counseling with the attorney will cost the broker money.
The broker must also determine whether the attorney will handle the case himself or delegate the analysis and decision-making process to a subordinate or partner.
If delegated, to whom and how closely will the attorney supervise the handling of the case?
The broker needs to literally interview any associate attorney who will work on or actually handle the case. Get them in on the conference.
The broker must be mindful the attorney (or associate) he is going to employ must have the broker’s best interests in mind.
An attorney has a basic duty to respond promptly to status inquiries by the broker and keep the broker reasonably well informed on matters relating to the case. [Calif. Business and Professions Code §6068(m)]
If the attorney interviewed is not retained to represent the broker, he still has the duty to maintain confidentiality of information exchanged between them. [B & P C §6068(e)]
Once the attorney has been chosen, the broker will be asked to enter into a retainer agreement with the attorney. The attorney has a statutory right to collect a fee for his legal services. [Calif. Code of Civil Procedure §1021]
Be sure the attorney fully explains the amount of fees or basis for their computation before the fee agreement is signed. Fee agreements for attorney services must be in writing when it is known the attorney fees will exceed $1,000. [B & P C §6148(a)]
This written retainer agreement must contain:
- the hourly rate and other rates, fees and applicable charges;
- the nature of the services to be provided; and
- the respective responsibilities of the attorney and broker in performance of the retainer agreement. [B & P C §6148(a)(1-3)]
All billings for services must be itemized, clearly state the amount due and the hourly rate or basis of calculation used to determine the fees. [B & P C §6148(b)]
If a contingency fee agreement is negotiated, the agreement must be in writing and contain:
- a statement of the contingency fee rate;
- a statement as to how disbursements and costs incurred in connection with prosecuting or settling the case will affect the contingency fee and the broker’s recovery;
- a statement as to what extent, if any, the broker could be required to pay attorney fees for related matters not covered in the fee agreement; and
- a statement the fee is negotiable and not set by law. [B & P C §6147(a)(1-4)]
A duplicate copy of the contingency fee agreement signed by the attorney and broker must be given to the broker.
Failure to provide this information will render the retainer agreement voidable at the option of the broker. [B & P C §6147(b)]
Later, if the broker has grounds and chooses to void a contingency fee agreement, the attorney will then be entitled to collect a reasonable fee based on the time spent on the case. [B & P C §§6147(b); 6148(c)]
The agreement can also be signed by and given to a representative of the broker. [B & P C §6147(a)]
Written fee agreements are confidential contracts between the attorney and client. [B & P C §6149]
Deductibility of legal fees
Deductibility of legal fees for tax reporting is determined by the activity causing the expense. If not deductible, the legal fees are either personal losses or a capital investment added to the cost basis of the property involved.
Legal fees fall into four federal tax reporting categories:
- personal expenses;
- business expenses;
- real estate rental (passive) expenses; or
- investment portfolio expenses.
Legal fees incurred for consultation on a broker’s business-related matter are fully deductible as an expense of earning brokerage fees, his trade or business.
Deductibility of legal fees incurred in income-producing and investment real estate matters is subject to strict regulations. [Internal Revenue Code Section 212]
Legal fees incurred in the management, conservation or maintenance of income-producing real estate – rentals – or for the production or collection of rents are deductible from rental income, a passive income category activity, as an expense.
Yet, legal fees incurred in connection with zoning battles, title defenses, condemnation or acquisition must be capitalized. These expenditures are added to the property’s basis as they are capital expenditures. [Soelling v. Commissioner 70 TC 1052]
Legal expenses incurred to preserve ownership or defend title to the owner’s personal residence are nondeductible personal expenses.
When employing an attorney, always ask for his advice on the tax deductibility of his fees.
The broker should ask for and review a typical or prototype billing statement used by the attorney.
The statement should be itemized, describing each legal service provided by the attorney (or his staff), the date the service was performed, the time spent rendering the service and the fee charged or the cost of each item.
The statement should also state the amount due and the hourly rate or other basis for calculating the fees. [B & P C §6148(b)]
Should the broker request a billing at any time, the attorney must provide the billing within 10 days following the request. [B & P C §6148(b)]
The broker is entitled to receive invoices at intervals of no less than 30 days following his initial request. [B & P C §6148(b)]
The attorney’s failure to meet these requirements will render the fee agreement voidable at the option of the broker. If the broker elects to void the retainer agreement, the attorney will be entitled to collect a reasonable fee. [B & P C §6148(c)]
Other factors influencing selection
Additional factors the broker should consider before selecting an attorney to represent him include:
- the attorney’s familiarity with real estate laws and how up to date he is on any statutory, case law and regulatory changes;
- if the attorney will review the file on a monthly or other periodic basis;
- if the attorney will automatically provide the broker with copies of all correspondence, documents and papers related to the case, and at what cost;
- if the attorney will discuss with the broker any substantial issues which may arise before he makes a decision or takes action;
- if the attorney will review the broker’s insurance policies for coverage of the dispute; and
- if the attorney will review insurance policies (i.e., homeowner’s policies, business insurance, errors and omissions insurance) to determine if legal fees are covered.
If the dispute is covered by insurance, the carrier may reserve its right to choose your attorney.
In some circumstances, however, the broker is allowed to select his own attorney in addition to the attorney selected by the insurance carrier.