Lien refers to the legal right a person has on another’s property if an obligation is not discharged. As an attorney is entitled to payment for services performed, the attorney has a claim on a client’s property until compensation is duly made. The right to an attorney’s lien may come from the common law or from specific state statutes.
Attorney’s lien refers to the right of a lawyer to hold a client’s property or money until payment has been made for legal aid and advice given. The property may include business files, official documents, and money awarded by a court. An attorney can exercise a charging lien or a retaining lien. Charging lien is an attorney’s right to a portion of the judgment that was won for the client through professional services. It is a specific lien and only covers a lawyer’s claim on money obtained in a particular action. Retaining lien is more general in scope and it allows an attorney to keep a client’s papers until the client has paid for the attorney’s services. However, attorney’s retaining lien is not recognized in some states.
In general, a lien is a security interest used by a creditor to ensure payment by a debtor for money owed. Since an attorney is entitled to payment for services performed, the attorney has a claim on a client’s property until compensation is duly made.
A charging lien is an attorney’s right to a portion of the judgment that was won for the client through professional services. It is a specific lien and only covers a lawyer’s claim on money obtained in a particular action.
A retaining lien is more general in its scope. It extends to all of a client’s property that an attorney might come into possession of during the course of a lawsuit. Until an attorney is compensated for services, he or she has a claim or interest in such property.
What Types of Liens Are Seen as Good and Which Are Bad for My Credit?
Creditors that allow purchases to be made through financing often require property to be pledged against a credit account. This property is known as collateral. Through the use of collateral, creditors establish a priority interest in the asset used to back the loan or line of credit. If you default on your repayment obligation, the creditor can place a lien on your property. Liens come in a number of forms under three broad categories: consensual, statutory, and judgment liens. But does having a lien affect your credit? The answer is it depends on which types of liens.
Types of Liens
Will a lien show up on a credit report? Ultimately this question comes down to understanding the main types of liens. In short, consensual liens do not adversely affect your credit as long as repayment terms are satisfied. Statutory and judgment liens have a negative impact on your credit score and report, and they impact your ability to obtain financing in the future. Consensual liens (that are repaid) do not adversely affect your credit, while statutory and judgment liens have a negative impact on your credit score and report.
Consensual Liens
Consensual liens are those you consent to voluntarily, such as taking out a loan or line of credit. Residential mortgages, vehicles, and business assets fall under the category of consensual liens. As long as you make payments on the financing in line with the credit agreement, you retain ownership and control over your property. Consensual liens are visible on your credit report, but they do not have a negative impact unless the collateral is taken back by the creditor due to nonpayment.
Statutory Liens
Mechanic’s liens and tax liens fall under the category of statutory liens. A mechanic’s lien is placed when a contractor or mechanic is not paid for work performed, and it represents a financial interest in the home, vehicle, or business on which the work took place. A tax lien is placed by the government when income, estate, or property taxes owed are not paid. Statutory liens can be detrimental to your credit as they stay listed for seven years.
Judgment Liens
As the most severe type of lien, judgments are the result of a court granting a financial interest in your property to a creditor. Judgment liens are common when personal or business property is used to satisfy damages incurred that are not wholly covered by insurance, such as a car accident or liability claim. Judgments remain on your credit report for up to seven years.
Mechanics’ Liens
A “mechanic’s” or “construction” lien protects the provider of services whose charges to the owner for repairs, improvements or maintenance have gone unpaid. These services have to be done to improve or maintain the value of the property. The contractor files the lien with the country recorder or clerk of court. Homeowners are responsible for charges by contractors as well as the subcontractors who, in theory, were to be paid by the contractor. Utah requires a 20-day notice to the owner before a contractor may file the lien.
Mortgage Lien
A lien on the property also exists when a mortgage loan is used to purchase the home. In exchange for use of the money needed to purchase the home, the lender has a legal claim on the property, as evidenced by the mortgage note that the borrower must sign at the sale closing. A mortgage lien, if unsatisfied by timely repayment of the loan, may result in a foreclosure by the lender and sale of the home at auction.
Tax Lien
A tax lien may be filed against the property by the Internal Revenue Service for unpaid federal taxes or by the Franchise Tax Board for unpaid property taxes. A Notice of Lien is filed with the county recorder and, in the case of commercial property, with the secretary of state. The lien “encumbers” the property, and will prevent the owner from refinancing, selling or transferring the property unless the lien is satisfied. The IRS and the county tax assessor can also place liens on property for unpaid income taxes and property taxes.
Release of Lien
Liens can be released by the owner meeting the obligation on which the lien is based. When the obligation is met, the lien holder files a release with the country recorder where the lien was originally filed. If that is not done, the owner must present proof of satisfaction to the recorder and apply for release of the lien. Recorded liens are the subject of a title search whenever a property is the subject of a sales transaction, and for most loan applications secured by the property.
Credit Significance
Liens against your property can be recorded by credit-monitoring agencies and affect your credit rating, which in turn may affect your ability to secure other kinds of loans, both secured and unsecured. It is in the best interest of the property owner to satisfy all liens as soon as possible, as the presence of a lien on a home seriously affects its market value to potential buyers. For the client who receives an unreasonably high bill that is the result of unethical lawyering, waste or incompetence, these concerns can be overcome with a sensible, managed approach. There are steps you can take both during and after the engagement to communicate your concerns to your lawyer. Appropriate questioning of bills often leads to a mutually-agreed upon reduction, and can even strengthen the attorney-client relationship. Should all else fail, fee dispute litigation provides substantial relief from some relatively common examples of attorney overbilling, while protecting an attorney’s right to a reasonable fee.
Points for clients to consider:
The Retention Letter Or Agreement Cannot Be Used To Justify An Unreasonable Fee
Lawyers will often refer to agreements they have with clients, typically drafted by the lawyer at the beginning of the engagement, as evidence that a client agreed to certain payment terms. For example, there may be agreement as to hourly rates, staffing, or contemplated courses of action. These provisions will be enforced, but only to the extent that the agreement is fairly negotiated, and the fee is reasonable under the circumstances. If either the agreement or the fee is later found by a court to be unfair, the court may either impose a smaller fee or disallow the fee in its entirety. Courts recognize that clients seldom have the experience or the inclination to negotiate every detail of their engagement agreement. Lawyers have form agreements that clients typically sign with little or no explanation, much less negotiation. In an effort to ensure that lawyers do not use superior experience or negotiating skills in drafting agreements with their clients, the Code of Professional Conduct and Responsibility that applies to all lawyers in Utah (other states have similar or identical codes) provides that an attorney “shall not enter into an agreement for, charge or collect an illegal or excessive fee.”
Any Promises Made By A Lawyer To A Client Will Be Enforced
While promises to a lawyer may be reviewed by a court, promises to a client will almost always be enforced. Despite this, lawyers often tell their clients they are entitled to a “bonus” over the agreed-upon fee because the matter has become more difficult than expected or because of an unexpectedly favorable result. It is common for such a lawyer to “negotiate” the increased fee in the middle of an engagement. Courts and bar associations will review such “negotiations” for evidence that the attorney asserted improper leverage. You should not feel compelled to pay your lawyer more than what you agreed to pay him. Of course, there is nothing wrong with paying the lawyer a bonus to reward work well-done, but this is the client’s call.
Diligence In Reviewing A Bill Can Save Money
Clients are best served by addressing a fee problem sooner rather than later. Good and honest lawyers will explain why your bill says what it says. They will admit mistakes if warranted, and suggest ways to minimize costs without jeopardizing results going forward. If your lawyer is unwilling to discuss the bills, you should put your concerns in writing, and consider ending the relationship. The downside of not raising billing concerns with your lawyer is substantial. You lose the chance to obtain a mutually-agreed upon reduction. The billing practice that offends you will no doubt continue. Finally, if the fee dispute ever gets litigated or arbitrated, your lawyer will claim that you consented to the disputed billing practice.
Courts Have Invalidated Many Methods Of Attorney Billing In Recent Years
While a summary of the law surrounding legal fees is well beyond the scope of this article, a steady stream of state and federal court decisions in recent years have invalidated certain billing practices that are still relatively common. Some examples of billing practices often found to be improper:
• Overhead, administrative charges and clerical services. Unless specified in the retainer agreement or other agreement, you should not have hourly charges for non-legal personnel such as photocopy operators, secretaries, messengers, librarians or receptionists. Nor should you be paying for heating, air conditioning or word processing;
• Time spent on billing and collections. For example, if you call your lawyer to discuss your bill, and you see that call reflected on your next bill;
• Bills that have not been itemized to reflect services rendered. If you are being billed by the hour, you have a right to a bill that shows what your lawyer was doing, and when he was doing it;
• Excessive time to complete a task. While this can be subjective, courts have not hesitated to use their legal expertise to declare work on a given matter to be excessive;
• Excessive staffing of a case or transaction. From a law firm’s perspective, the more people billing, the better. Courts may evaluate a matter and determine whether the staffing was reasonable or excessive;
• Not enough delegation. Where a senior partner is billing at sky-high rates but spending a lot of time on routine legal work, such as preparing filings or reviewing documents, a Court may find that the bill is allowable, but at a lower rate;
• Evidence of double-billing. This is where a lawyer bills two or more clients for the same effort;
• Unannounced hourly rate increases;
• Time spent on training new lawyers, or lawyers unfamiliar with a certain field of law; and
• Undisclosed mark-ups on “contract” or “temp” lawyers hired by the law firm.
A Lawyer Cannot Necessarily Quit Representing You Because Of A Fee Dispute
Lawyers will often threaten to withdraw from a case or transaction when a client misses a payment or two. The client than has two potentially unpleasant options either pay the lawyer what is possibly an unreasonable fee or spend even more money to hire another lawyer and get the second lawyer up to speed for the representation. A savvy client may consider a third option state a written objection to the reasonableness of the fee, pay some reasonable portion if warranted, and ask that the lawyer continue with the representation. Lawyers do not have an automatic right to stop representing a client in the event of a fee dispute. Of course, if you believe you have been overbilled, you may wish to fire your attorney, or the relationship may be soured on both ends to the extent that it does not make sense to continue. However, keeping your lawyer may be preferable to trying to find another one the lawyer will have fiduciary responsibilities, malpractice exposure, and a duty of zealous representation as long as he represents you.
A Lawyer Is Strictly Limited In What He Can Do To Collect His Fee
Like other businesses and professions, attorneys can take steps to collect accounts receivable. However, the lawyer’s unique role as fiduciary and legal advisor subjects him to more limitations on their conduct than other professionals. Utah ethics opinion prohibits lawyers from hiring a credit bureau to collect their accounts receivable. Moreover, a lawyer cannot use information learned during the course of the attorney-client relationship to apply pressure on a client for payment. Exceptions to this rule apply in attorney fee litigation and malpractice disputes, as the attorney can reveal information as necessary to defend himself or his fee. A lawyer is also prohibited from misleading the client into thinking that the lawyer’s claim for fees will prevail in fee dispute litigation. Lawyers frequently try to coerce payment by asserting an “attorneys’ lien” on all or part of a former client’s case file pending receipt of payment. Depending on whether the case or transaction is over, this can leave the client in the unenviable position of having to pay the fee to get much-needed papers for an ongoing legal matter. However, in practice a client operating in good faith has little to fear. If the client has a need for the documents in an ongoing matter, and a good faith basis for not paying a portion of the fee, lawyers cannot withhold critical papers. Even after the attorney-client relationship is over, the lawyer has a duty to assist in an orderly transition to replacement counsel to minimize prejudice to his former client.
A Lawyer Has Many More Reasons Than A Client To Avoid Fee Dispute Litigation
This does not suggest that fee dispute litigation is fun for anybody. Both sides should seek to settle such disputes whenever possible. Clients should certainly avoid fee litigation where they do not believe they have a strong case, or the amounts in dispute are not worth the effort. Lawyers have a right to make a living. Clients also run a substantial risk of losing a fee dispute, and paying the entire fee plus whatever fees they incurred in the fee dispute litigation. For lawyers, however, the stakes are much higher. A lawyer’s professional judgment is at issue in every fee dispute case. Failure to collect a large legal fee can endanger the lawyer’s standing in his firm and within the larger legal or client community. Fee collection claims often lead to ethical complaints, and counterclaims for malpractice, fraud, breach of fiduciary duty, or breach of contract. Even if a malpractice claim is weak the lawyer must ordinarily disclose the claim to his partners and malpractice insurer. It is often more palatable for the lawyer and the firm to strike a deal which allows them to collect some of their fee rather than go through the uncertainties of a court or arbitration process. Nor should the client be overly concerned that the “system” will protect the lawyer. Given the legion of cases disallowing legal fees, it is hard to make the case that the system is biased against the client. Judges are former lawyers who often take a pay cut when they leave the business of law. To be sure, some judges will identify with the lawyers. Others will recall their greedy former colleagues and be inclined to favor the client. Most will simply preside over the case without prejudice to either side.
Even If You Have Already Paid Your Lawyer, You May Be Entitled to Get Your Money Back
Fee disputes occasionally arise after the client has either advanced money in anticipation of services to be rendered (often called a “retainer” or “advance”) or tendered full payment for legal services already rendered. In either case, the client is ordinarily entitled to receive his money back if the lawyer has charged an unreasonable fee. Where money has been advanced in anticipation of future services, the lawyer is usually required to keep the money in a client trust account. The trust account money is considered property of the client in most jurisdictions. The lawyer has a right to withdraw the money after the fees are “earned” by the lawyer.
Any Unethical Behavior May Be Grounds For Total or Partial Forfeiture Of Fees
A lawyer is ordinarily not permitted to profit from unethical conduct that harms his client. This provides another ground for potentially challenging legal fees, even where the lawyer’s fees are otherwise reasonable. If the ethical transgression is slight or not related to the fees charged to the client, courts are less likely to order a forfeiture of fees. Where the transgression is serious and has a closer nexus to the fees, partial or total forfeiture is likely.
As a client questioning the propriety of your bills, ask yourself the following questions:
• Did my lawyer lie to me at any point in the representation?
• Did my lawyer fail to explain how this matter would be billed?
• Did my lawyer reveal any confidential information to third parties without my consent?
• Was my lawyer conflicted in any way from providing me with appropriate representation?
• Did my lawyer disobey any of my lawful instructions (not including disagreements which were discussed and resolved)?
• Did my lawyer treat advance or retainer payments as his own funds, or otherwise misappropriate my property?
• Was my lawyer incompetent in his performance of legal services?
If you believe a “yes” answer is appropriate for any of these questions, and there is a lot of money involved, you should consult with another lawyer.
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