As the number of new faces at the gym this time of year indicates, New Year’s resolutions are popular with a lot of people. The beginning of a new year is also a good time for lawyers to take stock of their practices and think about how they can make their professional lives a little easier for the rest of the year.
Brian Anderson, claims attorney for Wisconsin Lawyers Mutual Insurance Co. (WILMIC), suggests taking a look at three areas of risk that have produced some claims for WILMIC and its insured lawyers. They are 1) client selection, 2) communication and scope of representation, and 3) real estate matters.
Client Selection
In what situations should meticulous client selection come into play when determining whether to accept a case? Turning away business is never easy. Solo practitioners and small firms often feel they cannot be choosy about the clients they take. You accept cases for different reasons, and sometimes you live to regret your decision. If you’re like every other lawyer, you have felt that regret.
Brian Anderson says, “I often hear a policyholder say, ‘I never should have taken that case.’ Although attorneys are reluctant to turn clients away, sometimes saying no may be in your best interest in the long run. There are times when you simply have to turn away business. It doesn’t take long to learn which clients you shouldn’t have taken.”
For newer, younger lawyers, that’s not easy. Understandably, many newer lawyers want to help every client who calls. But as lawyers gain more experience, they often become more selective.
Anderson says that some of the most expensive and agonizing legal malpractice claims evolve out of situations in which the lawyer did not feel comfortable with the client before being retained or during the very early stages of the representation. “The ability to assess a client’s attitude and expectations toward the matter and your comfort level and competence to take on the representation is an important skill for a lawyer to develop.”
Anderson says using a checklist to “underwrite” a potential client is not a bad idea and he says the list should include the following questions:
Do you have time for the matter?
Are you competent to do this kind of work, and do you have the time and resources to handle the matter adequately? Seriously consider turning down or referring to another attorney a matter outside your area of expertise.
Has the client already consulted with or sued other attorneys before coming to you? CCAP can help you review your prospective client’s involvement with the court system. Don’t underestimate the importance of conducting “discovery” on your prospective clients.
Does the client have realistic expectations? Be wary of clients who want to pursue the case “on principle” or whose anger is out of proportion to the alleged wrong, making it unlikely that the legal system can offer any redress.
How likely is it that you will be paid? Fee disputes frequently are at the core of legal malpractice claims. If the client argues about fees, retainers, or advances from the outset, it is not a good sign. In contingency-fee cases, you should review whether you have adequate resources to take on the case. Avoid situations in which it seems that case-handling decisions will be dictated by economics instead of good judgment and zealous advocacy.
Anderson says, “Lawyers should listen to their gut and act on their instincts when deciding to take on a client. These are important reminders to focus on as you begin the new year.”
Prevent Mistakes in Residential Real Estate Transactions
Attorneys have a vital role to play in residential real estate transactions, especially when it comes to ensuring that all necessary documents read correctly and are signed and filed appropriately. A mistake might be so significant that it prevents a previously agreed-on home sale from closing. If you’re representing a buyer or a seller, you can reduce the risk of botching a transaction and disappointing your client by ensuring that you and the other attorney know who is responsible for which closing-related tasks.
The seller is generally responsible for preparing and obtaining the documents necessary for closing. If the seller is represented by a broker, then the responsibilities will be shared by the seller’s attorney and the broker, who should confer with each other at an early date to establish their respective responsibilities.
By contrast, the buyer’s attorney’s role in preparing for closing is to review the documentation prepared by the seller’s attorney and to request changes or corrections. In addition, the buyer’s attorney should keep in touch with the seller’s attorney or broker to ensure that all the prerequisites to closing (for example, ordering the title insurance commitment) are handled.
Using a checklist will help each attorney.
Buyer’s Checklist
Here are some (but not all) of the preclosing items for which the buyer and his or her attorney are responsible:
Ensure that all contingencies in the offer to purchase have been cleared, including financing, sale of property, appraisal, home inspection, and rezoning.
If the purchase contract indicated that the premises are currently leased, ensure that proper termination notice under Wis. Stat. sections 704.19 and 704.21 is given to tenants.
Determine how title will be taken (i.e., marital property or survivorship marital property), and notify the seller’s attorney or broker.
Contact the municipality to verify the property’s current zoning, and inquire as to pending zoning changes.
Pursue any special municipal matters (e.g., tell the buyer to comply with the requirements for securing an occupancy permit).
Check whether the property is in a floodplain, and if so, whether the municipality in which the property is located has qualified for federal flood insurance.
Contact the municipality regarding the prior year’s taxes, outstanding special assessments, completed or pending reassessments, and planned public improvements.
Seller’s Checklist
And here are some of the seller’s attorney’s preclosing responsibilities:
Order the title insurance commitment or abstract and send copies to the buyer’s attorney and lender.
If any work has been performed on or materials furnished to the premises in the last six months, obtain lien waivers for the owner’s affidavit.
Contact the municipality regarding the prior year’s taxes, outstanding special assessments, completed or pending reassessments, and planned public improvements.
Obtain a copy of the prior year’s paid tax bill.
Request a payoff statement from the seller’s mortgagee; copies should be sent to the buyer’s attorney and lender.
Comply with any local regulations (e.g., inspections and certificates required for occupancy).
Order a survey, if available, and forward a copy to the buyer’s attorney.
Forward a copy of the municipality’s response regarding taxes and special assessments to the buyer’s attorney.
Review the title insurance commitment or abstract (good title in seller in conformity with warranties in offer to purchase).
Ensure that any encumbrances not excepted in the offer to purchase are removed before or at closing. Prepare the request for a copy of the mortgage satisfaction or lien waiver, if appropriate.
Ask the seller whether any marital property agreements affect the property. If so, prepare the appropriate conveyance documents.
For the full checklists or additional information on this topic, see John L. Horwich et al., Real Estate Transactions System (State Bar of Wisconsin PINNACLE 6th ed.), available by visiting the WisBar Marketplace or calling the State Bar at (800) 728-7788 or (608) 257-3838.
Consider the red flags noted above, Anderson says, and if you are not feeling comfortable during the initial contact, you might be best off not accepting the case or withdrawing at an early stage. “A legal malpractice claim negatively affects your profit, reputation, and stress level. Careful client selection can help you avoid these negatives and situations where you feel trapped working with a client you didn’t want or on matters you never wanted to undertake.”
Communication and Scope of Representation
Communication with clients is not a new concern, but it remains at the heart of many of the legal malpractice claims Anderson sees. More specifically, he says, “The issue of what the lawyer was retained to do or not retained to do is often vague, not well documented, and an area of confusion when a legal malpractice claim is asserted. An emerging trend where communications regarding the retention is of the utmost importance concerns limited scope representation, or unbundled legal services.”
It is a good idea to have a written agreement in any legal representation, and is particularly important in defining the scope of representation. Some lawyers have been engaged in limited-scope representations for years, but many lawyers don’t realize that is what they are doing.
Anderson says, “The importance of letters of engagement outlining the scope of the representation and the fee agreement cannot be overstated. Communication needs to be clear, documented, and geared toward your client’s individual level of sophistication to make sure that your client is reasonably informed about the status of the matter. Supreme Court Rule 20:1.4 provides some guidance here.”
Anderson notes the digital age has made it easier and faster for lawyers to communicate with clients, but that has pluses and minuses. “Unfortunately, when a mistake is asserted against a lawyer we have found that there is often a void in the documentation outlining the communication and decisions made by the attorney and the client. Faster communication is not always better. As your practice heads into 2015 at the speed of light, remember that good client communication needs to be documented; should be in writing; should educate your clients so that they can make informed decisions regarding the representation; and should include letters of engagement outlining the scope of the representation. If there are any changes in the scope of your representation, it is vital to define who the client is. And remember a written fee agreement is required if the total cost of the representation to the client, including attorney fees, is more than $1,000, which is spelled out in SCR 1.5.”
As Anderson tells audiences at risk-management programs, “Clear written communication with your client is not just good customer service; it can be a lifesaver for a lawyer facing a legal malpractice claim.”
Real Estate Matters
Real estate work is the area of practice that generated the most malpractice claims in the ABA’s most recent profile of legal malpractice claims. More than 20 percent of all legal malpractice claims reported nationally were made against lawyers practicing real estate law. For WILMIC, more malpractice claims in 2014 arose out of real estate matters than any other area of practice, even more than plaintiff personal injury work, traditionally the practice area producing the most claims.
Anderson says one of the troublesome aspects of certain real estate matters arises when the attorney handling a real estate transaction loses focus on who the client is and considers the “client” to be the real estate transaction itself. “Representing the entity on a ‘deal’ can be problematic if the underlying transaction falls apart. Always remember who your client is and make sure you have had clear communications with your client regarding relevant developments, both good and bad.”
Anderson offers the following rules that may protect lawyers practicing in the area of real estate from becoming the scapegoat when a good real estate matter goes bad:
Always know who you represent: corporation or shareholder(s), partner or partnership, buyer or seller, which family member or members? The people or entities that claim you as “my attorney” can change during the course of a real estate deal. Confirm that you are not the lawyer for those you are not representing and remember, “the deal” is not your client.
Discourage the client from mentally arranging the furniture in a home he or she might buy until the deed is delivered. You are your client’s advisor. If a transaction is no longer in your client’s best interest, it is important that you remain objective so that you don’t become the target of a client suffering buyer’s or seller’s remorse.
Spell out clearly, in writing, what work you are responsible for, even the small tasks. This can be especially important when representing friends and family or a longstanding client, that is, situations in which you might otherwise overlook some of the necessary formalities.
Carefully examine the title commitment and all the exceptions and exclusions and inform your client how they could affect the property. Clients may be willing to overlook these concerns at the time of closing, but those feelings could change if they later can’t make full use of the property as they intended.
Your work is not over at the closing. Make sure to follow through and ensure that documents are recorded and the title policy is issued and that your work is in fact complete. Review the file prior to the closing to make sure all the necessary documents have been recorded. This also is a good time to give your client a status update so he or she knows all the documentation has been completed properly.
When there are several lawyers involved in a transaction, make sure your role is clearly defined so that no one assumes that someone else has or will take care of something.
Communicate effectively with your client. Don’t fall into the trap of believing that a long string of emails and texts represents adequate understandable communication with your client. The questions to ask yourself are: Can my client communication be easily reproduced? And, do the texts, emails, or letters adequately memorialize the scope of my representation? Always make sure the communication you have had with your clients is easily accessible and understandable in the event you have to revisit an issue with your client.
Anderson adds that during both good and bad economic times, lawyers practicing real estate law are at risk of facing a claim. “When the real estate market is strong, the risk in this area can increase as a result of increased demands causing lawyers to cut corners to save time. In bad economic times, this risk is often a result of clients’ demands to keep costs down and ultimately blaming the lawyer for getting them into a bad deal in the first place.”
Conclusion
With the new year still young, now is a good time to consider your practice and develop risk-management strategies to help you avoid claims. While client selection, communication, and real estate work aren’t the only three areas that can cause malpractice claims or Office of Lawyer Regulation complaints, Anderson says, “By starting the new year with a renewed focus on careful client selection, better communication clearly defining the scope of the representation, and paying attention to details when doing real estate work, you can help yourself avoid claims in 2015.”