IN A FLUCTUATING REAL ESTATE MARKET,
OUTDATED APPRAISALS ARE WORTHLESS
BY PAMELA A. BRESNAHAN
THE LAWSUIT YOU FILED ALLEGES THAT YOUR CLIENT
has a claim to a parcel of real property. Whether the
case is a divorce, a contract claim or another type of
dispute, the worth of the claim turns largely on the
value of the real property.
At the outset, you hire an appraiser to set a value
on the property. After 10 months of discovery, opposing counsel comes to you with a settlement offer.
You sit down with your client and discuss the offer.
Ultimately, your client agrees to drop his claim on the
property in return for a cash payment, and the suit is
dismissed. But a few months later, the property sells
for 25 percent more than the amount suggested by
your appraiser. It doesn’t take long before the client
calls claiming that he got a bad deal in the settlement.
It is important to remember that the settlement of
a lawsuit does not terminate an attorney’s exposure to
professional negligence claims. Attorneys have been
sued, for instance, after recommending settlements
without adequately investigating the value of personal injury claims—Consolidated American Insurance Co. v.
Hinton, 845 F. Supp. 1515 (M.D. Fla. 1994)—or the
value of marital property—London v. Weitzman, 884
S.W.2d 674 (Mo. App. 1994). So it is not an unreasonable extrapolation to expect that, in a case involving
the value of real property, a client would sue his attorney for recommending settlement without obtaining
the most up-to-date appraisal possible.
Certainly, there was a time when the value of real
estate fluctuated little more than a couple of percentage points each year. During the past few years,
however, we have witnessed median home prices
produce both year-over-year gains and losses exceeding 30 percent.
Accordingly, it may no longer be acceptable for
a lawyer to enter into settlement discussions while
relying on an appraisal that is a year old or even six
months old. Despite factoring market changes into
your settlement recommendation, if you only have
an old appraisal or outdated sales data or an outdated
assessment in your file, you expose yourself to claims
Pamela A. Bresnahan is a partner at Vorys, Sater, Seymour
and Pease, and heads the litigation practice group at the
firm’s office in Washington, D.C. She is a member of the
ABA House of Delegates and a past chair of the Standing
Committee on Lawyers’ Professional Liability.
THE ETHICS RULE AGAINST COMMUNICATING WITH
A REPRESENTED PARTY ISN’T JUST FOR LITIGATORS
BY SCOTT E. WAXMAN
THE CLOSING IS DRAWING NEAR. A FEW SIGNATURES,
a couple of wires and the conclusion of another successful transaction can be celebrated. Your client—
the bank—has calculated the applicable interest rate
and asks you to communicate the rate to the borrower, which is represented by another law firm. You pick
up the phone and call the borrower’s comptroller. Or
maybe the borrower’s comptroller phones you directly to obtain the interest rate.
Each of these scenarios is seemingly benign. But is
it ethically permitted for you to speak with the comptroller? The answer is no.
A basic rule of professional responsibility is that a
lawyer may not communicate with a party he or she
knows to be represented by other counsel about the
subject of the representation without the express
consent of that party’s counsel. The standard version
of this ethics mandate is set forth in Rule 4. 2 of the
ABA Model Rules of Professional Conduct, which
are generally followed by every state but California.
Most attorneys are very familiar with this rule in the
context of litigation, but compliance in transactional
practices is very sporadic. Comment [ 1] to Model
Rule 4. 2 states that it is designed to protect a represented party “against possible overreaching by other
lawyers who are participating in the matter, interference by those lawyers with the client-lawyer relationship and the uncounseled disclosure of information
relating to the representation.”
Whether or not one accepts the underlying principle of the rule, that principle is just as applicable in