Attorneys handle various trust accounts, most of them in their practice in New York City. Statewide, there are more than 48,000 IOLA accounts at multiple banks. A lawyer in this state cannot place fast money in a non-interest-bearing account.
The New York State Interest on Lawyer Account Fund, better known by its acronym IOLA, is responsible for helping low-income citizens receive legal advice regarding food, family, employment, and access to basic housing. In this state, attorneys have strict rules regarding the escrow account. These are the New York attorney escrow account rules.
The New York escrow account
An escrow account in New York is where an attorney, lender, or other representative holds the home buyer’s deposit and important documents to act as insurance to maintain the steps established for the purchase and sale process. The funds and documents are released after both parties have completed the process.
The operation of this type of bank account is as follows:
- Escrow accounts hold the money until the transaction is completed
- Escrow accounts protect all parties in the buying and selling process; therefore, money is not exchanged before the contract is set in motion
- The earnest money is placed in escrow after the purchase contract is signed
- Mortgage companies use escrow accounts to pay property taxes and homeowner’s insurance and ensure that all related fees are paid correctly
Why do escrow accounts exist?
The protection of both parties is the main reason an escrow account is put in place. It allows everyone involved to move forward without fear of losing time or trust. Money and important documents are not transferred until all the agreements established in the purchase-sale contract are fulfilled.
To make this process more transparent, the buyer and seller should mutually agree on a clause where the agent will be in charge of the process; this agent should be a real estate attorney, a mortgage loan servicer, or some other licensed professional. Between 1% and 2% of the money goes to the escrow agent.
How many types of escrow accounts exist in New York?
By established rules, there is only one type of escrow account intended to serve as an escrow account for real estate. It is proved by attorneys or law firms specializing in purchasing and selling real estate. Real estate brokers can also establish escrow accounts to hold the deposit for the rental application.
New York escrow account regulations
Because of the fiduciary nature of the attorney-client relationship, the lawyer must separate themself from their assets and strive to keep the money and property belonging to the client. Among the most important rules is the idea that the legal specialist should not mix the money with their own or use it for their benefit.
Any violation of the rules that establish the use of a client’s property in New York will result in the lawyer receiving disciplinary measures that fit the seriousness of the infraction. For example, among the most serious is the idea of assuming responsibility for the loss or expenditure of funds, whether or not the lawyer has benefited. Commingling personal funds with client funds directly violates DR9-102(a) and 22 NYCRR § 603.15(a)).
To avoid the infringement mentioned above, all money deposited to an attorney or law firm must be deposited into one or more bank accounts that can be identified within New York or elsewhere with the client’s prior consent. The only funds deposited to the attorney or law firm within that account is the amount necessary to pay the fees for the banking services.
Like every rule, there is an exception. In New York State, it is to deliver money in advance for future payments and the withdrawal of funds due or owing. But, if there is any inconvenience, the money must remain in the client’s account separately until the inconvenience is resolved.
How long can a lawyer hold money in escrow?
If you are in this process and doubt how long they will hold your money for, the answer is until the transaction is finalized. The funds are released once all the contract agreements are fulfilled.