Real Estate Lawsuits and Contingency Fees

Lawyers often charge 15% to 35% fees computed on the total settlement of a client’s claim. This is the “if you don’t win, you don’t pay” advertisement that you see.

This seems helpful for those who cannot afford to hire a lawyer. Traditionally, a lawyer was retained on a fee for service basis or hourly rate. Either method is fine if the lawyer does the work.

There are a number of clients whose cases are stuck in the judicial system with a lawyer who has lost enthusiasm for the case. It’s not progressing because the lawyer is not working on the file. Nothing is happening. In a year, this is not going to be getting any better.

It’s very difficult to switch because the first lawyer holds the file for ransom, and the second lawyer can’t take over until the file is released.

There were going to be a lot of real estate lawsuits from the Spring of 2017. Then, the prices were high, the lenders wouldn’t lend by closing time on the high prices. So, this placed many buyers in default. This could happen again! We really don’t know what’s in store for 2022.

The Claim

The Seller’s claim will be the deposit forfeiture at a minimum or if damages can be proven, the additional losses sustained by the Seller. Easily, this can amount to several hundred thousand dollars.

Negotiating with the Lawyer over the Lawsuit

If the claim is just for the deposit, then the case is relatively straightforward. A junior lawyer could do this type of case, as long as they do litigation.

I would suggest that this type of case works well if the lawyer is retained on an hourly basis. Have the lawyer estimate the time. Then come up with a reasonable estimate, not a best cases scenario. Double the time allocated and have the lawyer guarantee the fee won’t be more than double the estimate. That’s fairly generous.

Have the rate specified and have the rate guaranteed for the duration of the lawsuit. You don’t want to hear that you retained the lawyer at $250.00 per hour but 14 months into your case, you are now being charged $500.00 per hour. 

If two lawyers are both working on a file, and they need to meet only the rate of the highest billing lawyer is to be charged to the file, not both. There’s no point paying for the junior’s education. They are all supposed to be experienced professionals.

If you are selecting a contingency, have the lawyer first estimate the costs and the time, on an hourly basis. Then, what do they suggest by way of contingency fees. This time, the lawyer is taking some additional risk. If they don’t win, then, they don’t get paid.

If the case is easy, then a percentage at the lower end is appropriate. If it’s quite difficult, then a higher percentage is in order

Again, if the case is simple enough, then the lawyer should be able to get it done.

The contingency arrangement is going to be challenging if the case is difficult, complicated, or time–consuming. At the outset everything is usually fine, but what if there are a few roadblocks? The lawyer isn’t being paid. The lawyer needs to pay the rent and receive funds from the paying clients. This case is going down to the bottom of the pile.

If there is a contingency and the lawyer has lost enthusiasm, then how does the client get a new lawyer involved? This can be difficult.

So, there should be an ultimate time limit, no matter what! Let’s say that the lawyer expects that the case should be done in a year, possibly two years if things don’t go well. At the three year mark, this would be quite a surprise if matters weren’t resolved.

Just like a Listing Agreement or a Buyer’s Representation Agreement, which have time limits for actual performance, this contract should have a final end date, time limit. If there’s no money or no resolution, then the client can move on unencumbered and retain another lawyer. There’s no need to pay the first lawyer. No referral fees need be paid. The client can simply move on. This isn’t something which is usually included, but, it should be.

Brian Madigan LL.B., Broker

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