A former co-worker called from his current bank to ask if a bank could legally obtain a security interest in an IOLTA account. It seems that the person who is to be the recipient of the funds in the IOLTA wants a loan, and wants to secure it by those funds. The attorney holding the IOLTA didn't have any problem with the arrangement.

My contention is that if the funds really belonged to the borrower without any conditions, they would have been disbursed already. Also, I'm not sure that a lien could be taken on an IOLTA in any case. Any opinions or experience with this?

If the funds are available, why are they not being turned over the the "owner." There have got to be conditions outstanding that would impact your lien, if the depository institution involved will even accept a lien on this type of account.

Grist is correct. In addition, you may want to look at your state law and rules of professional conduct pertainining to IOLTA accounts. The money in those accounts belongs to the attorney's client, and not to the attorney. I find it very hard to believe that the attorney could pledge funds as collateral for a loan when the attorney has no ownership interest in those funds. You may find that even an attempt to do so might necessitate your reporting him to the Bar association.
Leslie

Grist - that little point was my worry as well. Until the funds are disbursed to the beneficiary, it's not a sure thing!

Leslie - the attorney isn't the one obtaining the loan, the beneficiary of the IOLTA funds is. The attorney just stated that he would sign collateral documents as custodian of those funds. I'm concerned with the legality of that as well. Are different states IOLTA laws that different? The ex-coworker asking the question is not in Texas.

Oops- you're right. I missed that. I was so excited to see an IOLTA question, I didn't read it properly! Yes, I do believe state laws differ on this topic- ours are located in Maryland Rules/Title 16 Courts, Judges and Attorneys. Rule 16-609 states that an attorney may not borrow or pledge any funds in an attorney trust account. Again, that seems to be stating the the attorney himself may not do this, but does not address the intended recipient of the funds. I think, as you and Grist stated, the term "intended" recipient is the key. In addition, what is the bank's general policy regarding loans against the funds in Trust accounts?
Leslie

I suspect that the question of why the funds are still in escrow is one that you really need to worry about. If the funds truly belong to the "beneficial owner," with no strings, they would not be held by a third party. And if there are strings attached to the ownership of the funds, I wouldn't touch them as collateral.

Don't even THINK about it!