New York Law (NYLE) Practice Exam

A lawyer who receives a deposit on a real estate contract must do what with the funds?

1. Use it for personal expenses

2. Deposit it in his attorney trust account

3. Hold it in escrow without any documentation

4. Return it to the buyer immediately

The correct answer is: Deposit it in his attorney trust account

When a lawyer receives a deposit on a real estate contract, the appropriate action is to deposit the funds into the attorney's trust account. This is crucial for maintaining the ethical obligations of a lawyer and safeguarding client funds. Trust accounts are specifically designed to hold client money separately from the lawyer's personal and business funds, ensuring that the funds are used solely for their designated purpose as per the client's instructions. This practice helps protect the interests of all parties involved in the transaction, as it provides a clear record of the funds and ensures that they are available when needed for the transaction or are returned if the deal does not go through. It also helps in complying with state bar regulations regarding the handling of client funds, which generally requires that lawyers maintain stringent records and adhere to specific safeguards. Other choices are misaligned with professional conduct standards: using client funds for personal expenses clearly breaches ethical guidelines, failing to document and hold funds in escrow opens up risks related to accountability and transparency, and returning funds immediately would not be appropriate without understanding the context or intent of the deposit in relation to the real estate contract.