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Real Estate LawThe newsletter of the ISBA’s Section on Real Estate Law

April 2011, vol. 56, no. 6

Five reasons to collect a retainer up front in lieu of getting paid at the closing

1. Avoid potentially delaying your client’s closing. You could potentially delay your clients’ closing by 3 days or more if your attorney fee increases the buyer’s annual percentage rate by 0.125% or more as reflected on the Truth-in-Lending disclosure. The lender must incorporate all charges which will be on the HUD-1 at closing. That includes your attorney fee. If you forgot to inform your client’s lender of your attorney fee, know that an increase of more than 0.125% in the Annual Percentage Rate (APR) from the initial Truth in Lending disclosure (TIL) requires the TIL disclosure to be revised and reissued to the homebuyer. The home buyer must receive a revised TIL disclosure at least three business days before closing, providing the home buyer with the time required to determine if the home buyer is comfortable with his or her loan choice. If mailed, the TIL disclosure is considered “received” three business days after mailing. then a new TIL will need to be prepared and the buyer is now entitled to three days’ notice and review of the new TIL. If you get to closing and discover that the lender has to prepare a new TIL for failure to include your fee, the closing will be delayed for three business days.

2. Avoid having your attorney fee directly compared to that of opposing counsel. You sit down with your client to explain each expense listed on the HUD-1. On the line across from your attorney fee is the fee charged by opposing counsel to their client. Not only is your client looking at that and comparing fees, but the direct comparison of fees between the attorneys will be on display to any and all third parties who view the HUD-1, including the real estate brokers, mortgage brokers, loan officers, the opposing party, opposing counsel, title company personnel, and subsequent CPAs or accountants who prepare income tax returns for the parties using the HUD-1. This direct fee comparison between the buyer’s and seller’s attorneys in real estate deals tend to reinforce the pervasive false belief that a lawyer’s fee is the only pertinent criteria to consider when hiring legal counsel rather than criteria such as skill, service, reputation, knowledge and experience.

3. Avoid getting stuck with the bill for the plat of survey you ordered on behalf of your now recalcitrant client. You are hired to represent a seller of real estate and you diligently order the survey. The surveyor produces the survey and charges you between $300.00 - 700.00 for the survey. A few days later, your client’s buyer gets denied for a loan and the deal falls through. Your client refuses to answer your phone calls, leaving you stuck with the bill to pay the surveyor. Now your client is not only failing to pay you for the time you worked on the matter, but has also left you with a large cost to pay out of pocket. Had you obtained a retainer up front from your client to cover costs such as the survey, you wouldn’t have been left in the lurch.

4. Avoid delays in getting paid for your services if the lender fails to timely fund. It’s Friday afternoon at 5:00 p.m. and the closer tells you that she can’t reach the lender to get funding authorization. They won’t be able to fund until Monday. Would you like your check mailed to you instead? If you had obtained a retainer up front from your client, you would have been able to timely receive payment for your work instead of waiting on the buyer’s lender, then the title company and finally the post office to deliver your check.

5. Avoid being pressured to take your attorney fee off the HUD-1 so your client can meet their bottom line with good funds. You’ve been there. Your client is scraping together their shekels to purchase their first home. You have reviewed the RESPA and told your client to get a cashier’s check or send a wire for the bottom line amount. You arrive at your 4:00 p.m. closing to discover that the lender changed the amount of the escrow by the hundreds or thousands of dollars in order to collect for the future property taxes. Now your client is short on their bottom line and needs a quick fix to avoid having to make a trip to the bank which is either way across town or closing in a half hour. The title company won’t accept a personal check for anything over $100 [so why would you?]. Your client’s real estate agent proposes a “brilliant” idea to your client: remove the attorney’s fee from the HUD-1 and your client can write the attorney a personal check. Will you agree? Notice that the real estate agents didn’t offer to take their commission off the HUD-1 in lieu of a personal check. So why should you? You concede to the idea and cash your client’s personal check which subsequently bounces. You try to contact your client who is now recalcitrant or penniless, avoiding your phone calls or refusing to pay you. An ounce of prevention is worth a pound of cure. Avoid this risk by taking the simple step of collecting a retainer up front. ■


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