Legal Ethics Opinion No. 1469

Trust Accounts: Earning Interest on Escrow Funds of Real Estate
Settlement Service Owned by an Attorney

You have indicated that a member of the bar was formerly an
associate in a law firm specializing in real estate law.  After
leaving that firm, the lawyer no longer practices law and has
formed a title company, serving as its sole shareholder and
director.  The sole business of the title company is to conduct
residential settlements.  You indicate that the attorney does not
offer any legal services through the company and all legal
matters are referred to outside, unrelated counsel, although you
further indicate that the attorney does prepare notes and deeds. 
Furthermore, you advise that, in the course of transacting its
business, the company receives loan proceeds from lending
institutions which it holds in escrow in anticipation of the
various closings and also holds monies which are received from
prospective purchasers.  Finally, you indicate that interest is
earned on both types of deposits, but is not accounted, credited
or paid to either the lending institutions or purchasers.

You have asked the committee to opine whether, under the facts of
the inquiry, it is proper for the title company to retain the
interest earned on the escrowed funds in light of the factual
pattern which you believe demonstrates that the attorney
shareholder/director is not otherwise engaged in the practice of

Since the facts you present indicate that the attorney
shareholder/director is preparing deeds and notes [for the
customers of the title company], the committee believes that an
attorney/client relationship does arise between the attorney
shareholder/director and those individuals or corporations for
whom such documents are prepared.  The committee cautions that
such preparation of legal documents by the [non-law firm] title
company is subject to the constraints of the Unauthorized
Practice Rules in general and Unauthorized Practice Rule 6 as it
particularly relates to real estate practice.  See also UPL Op.

Based upon its conclusion that the preparation of deeds and notes
does create an attorney/client relationship, the committee
believes that the appropriate and controlling disciplinary rules
relative to your inquiry are DR 9-l02(D) and (E), outlining the
manner in which an attorney may deposit funds of a client in an
interest-bearing trust bank account.  

The committee has previously opined that it is improper for a
lawyer or law firm to earn interest or receive any dividends for
the lawyer's or firm's benefit on clients' funds held in an
attorney trust or escrow account.  See LEOs #392, 83l. 
Furthermore, LEO #ll70 required the attorney who set up a
separate real estate settlement service firm to which he referred
his clients to secure the client's informed consent to the
service's earning of interest on such accounts.  

Thus, the committee is of the opinion that so long as any
attorney affiliated with the real estate settlement service
prepares deeds and notes for the service's customers, any
interest earned on the monies received must be treated in
accordance with the requirements of DR 9-l02.  Should no such
legal services be provided by the service, the committee is of
the view that no attorney/client relationship would arise and
thus the business activity would be outside the purview of the
Code of Professional Responsibility.

Committee Opinion
June 22, 1992