The Ethics of Real Estate Transactions in New Jersey: Where Deals and Duties Intersect

Real estate transactions often move quickly. Buyers want certainty, sellers want speed, brokers want the deal to close, and lenders want documents yesterday. In that environment, it is easy to forget that a real estate transaction is not simply a business deal—it is a fiduciary process governed by clear ethical obligations.

In New Jersey, attorneys involved in real estate matters are bound by the New Jersey Rules of Professional Conduct (RPCs), which impose strict duties regarding client loyalty, conflicts of interest, candor, and the handling of funds.

Escrow Funds and Trust Accounts

One of the most sensitive areas of real estate practice is the handling of escrow deposits and closing funds. These funds are governed by RPC 1.15 (Safekeeping Property) and must be treated with strict care.

Key requirements include:

• Segregation of funds. Escrow deposits must be placed in a properly designated attorney trust account, separate from operating funds.

• Authorized disbursement. Funds may be released only in accordance with the escrow agreement or closing instructions.

• Recordkeeping. Attorneys must maintain complete trust account records for seven years.

These requirements are not administrative formalities—they are central safeguards designed to protect the parties involved in the transaction.

The Wilson Rule

New Jersey enforces one of the strictest standards in the country regarding client funds. Under In re Wilson, 81 N.J. 451 (1979), knowing misappropriation of client funds results in automatic disbarment.

Importantly, this rule applies even to temporary use of escrow funds. In real estate practice, that means an attorney may never use client funds—even briefly—for another purpose or release them before the conditions governing the escrow have been satisfied.

Ethics Protect the Transaction

Most ethical issues in real estate arise not from intentional misconduct but from the pressure to close a deal quickly. Requests to release escrow funds early, adjust closing statements informally, or work around documentation requirements can place attorneys in difficult positions.

The ethical rules exist to ensure that transactions remain transparent, accountable, and reliable for all parties.

The Bottom Line

A successful real estate transaction depends not only on price and timing but on the integrity of the professionals involved. When attorneys adhere to the ethical rules governing escrow funds and fiduciary duties, they protect both their clients and the transaction itself.

Craig S. Gilgallon

Attorney at Law

(973)605-8800