Ten Questions to Ask Before Hiring a Lawyer

Every successful real estate investor works with a team of professionals.  For those who are getting started, you should include a lawyer on your team, but start early.  If you wait until a situation becomes a crisis, the process can be confusing and could get very expensive.  Selecting the right lawyer can take some time and effort, but it will be worth it.

Even after going through a process of getting referrals from friends and colleagues, doing research on the Internet, and perhaps conducting a couple of interviews, you still need to learn how to make the best use of this valuable resource as a member of your team.  Many advisors promote the use of the “10 Question” approach – asking a series of questions before you hire a professional, such as a doctor, lawyer, financial planner, or other specialist.  These are often the same questions:  What is your experience? How long have you been doing this?  Have you handled cases like mine?  What is your success rate?  What do you charge?  How much will it cost?  What will be your approach?  Who will be handling the file?  What are my chances of winning?

These are all good questions, but I recommend a different approach – asking yourself a series of questions before you hire a lawyer.  Let’s face it – if you’re in trouble, you are not in the best position to bargain.  Imagine asking your cardiologist about his fees as they’re wheeling you into the emergency room.  In the real world, it is not always practical or advisable to negotiate with the ambulance driver or the roto-rooter man.

In order to make the best use of a lawyer on your team, you should ask yourself the following questions.  At all times, you will (or should) know more about your circumstances than your lawyer.  If you don’t know how you got into a dispute, or what you hope to achieve, how can you expect any professional to assist you? By asking yourself the following questions, you will find that you will be able to maximize the return on your investment in professional legal advice, and make the best use of the lawyer on your team.

1.  ARE YOU SEEKING KNOWLEDGE, JUSTICE OR REVENGE?

In other words, are you planning ahead or reacting to a legal problem?  If you are just getting started in a business or real estate transaction, a lawyer should be able to help you spot potential problems and provide useful guidance.  On the other hand, if you have been sued or recently experienced a breakdown in a business transaction, you need a lawyer who can help you review your options, and if necessary, take legal action on your behalf.  Unfortunately, most people wait until they need a lawyer instead of seeking advice before the need arises.  Consulting with a lawyer before circumstances force you to hire one can prove to be one of your most valuable “investments.”

2.  HOW DID YOU GET HERE?

If circumstances suggest you need to hire a lawyer, the first question you should ask yourself is “How did this happen?  How did it get to this point?”  Carefully and objectively review the chronology of events leading up to the dispute, and be prepared to explain to the lawyer what steps you have taken, if any, to resolve the matter.  Generally, disputes don’t happen suddenly.  Documenting the events will help your lawyer better understand the background and could save you significant amount of legal costs.

3.  IS THIS A BUSINESS ISSUE OR A LEGAL ISSUE?

A majority of disputes arising from real estate transactions involve primarily business issues rather than legal issues.  All dispute resolutions ultimately involve decisions that encompass elements of legal rights, fairness and equity.  A lawyer cannot make business decisions for you, but they can explain different legal strategies and consequences affecting your strategic planning and the “bottom line.”  The more the lawyer understands your business model, the better the chances the legal advice will be tailored to your situation.  Ultimately, you must make a decision, or it will be made for you.

4.  HOW MUCH IS AT STAKE?

This is usually among the first three questions a lawyer will ask you.  The answer helps the lawyer to understand the nature of the dispute and assess the amount of resources that might be required.  Every client should understand the importance of doing a cost-benefit analysis before going forward with expensive legal strategies.  Under the American judicial system, recovering your legal costs and attorneys’ fees is the exception to the rule.  If you feel you have been wrongfully sued, or are seeking your “pound of flesh” from a former business partner, seeking justice or revenge can be very, very expensive.  Legal disputes can end up costing hundreds of thousands of dollars and could result in a person losing their career, their marriage, and sometimes their sanity.  A good lawyer who is looking out for your best interests will help you to carefully evaluate all consequences of a proposed legal action.  Be realistic when evaluating the relative costs versus the benefits of your legal strategy.

5.  CAN YOU MAKE BETTER USE OF YOUR TIME AND MONEY?

Litigation can take up a lot of time and cost you lots of money.  You should make your decision on the basis of what is best for you in the long term.  What outcome is most compatible with your long-range plans?  If you have suffered a loss of money in a transaction, consider the “hidden” cost of trying to recover the funds, such as the amount of time you will have to spend searching for documents, attending depositions, and preparing for trial, not to mention attending a lengthy trial in some cases.  You should consider how you could use this time to better advantage – perhaps making more money than you lost!  You should evaluate what you can learn from the experience, and put that knowledge to good use.  Do the math – and consider the return on investment.

6.  HAVE YOU DONE YOUR HOMEWORK?

Before you hire a lawyer, do your homework.  You know more than anyone about your case and the circumstances.  Thanks to the Internet and many excellent publications like Nolo Press, you can educate yourself about some of the relevant law that may affect your situation.  It is rarely a good idea to represent yourself, but learning more about the law will help you ask the right questions when you meet with your lawyer.  Since most lawyers charge by the hour, doing your homework will save you money.  A better understanding of the legal process will also help you make better decisions about your case.  Doing your homework can yield a valuable, tax-free free return on your investment.

7.  WHAT WOULD YOU SETTLE FOR?

One of the first questions a lawyer should ask their client is what they would be willing to accept to settle the case.  Clients are often skeptical – why think about settlement when they have a good case?  The reason is simple – there is no such thing as a guaranteed outcome.  More importantly, our legal procedures make it mandatory for parties involved in litigation to make a good faith effort to resolve the dispute through “alternate dispute resolution” procedures, such as mediation and arbitration, before going to trial.  There is absolutely no way to know for certain how a Judge or Jury will decide your case after a trial, and the post-trial procedures for challenges and appeals can go on for years (yes, years).   If you want to have any control over the future of your case, you need to consider settlement.  In fact, most cases can be settled before any litigation is commenced.  Over 90% of all cases filed in Court are settled before going to trial, and many more are settled within hours of commencing the actual trial.  Bottom line:  the sooner you can settle a dispute, the less it will cost in terms of time and legal fees.

8.  HOW COULD THIS SITUATION BEEN AVOIDED?

At some point, usually after you receive an invoice from the law firm you hired, you will ask yourself how the dispute could have been avoided in the first place?  Obviously, it would be better to know the answer before you get into difficulties, but hindsight tends to teach us the value of foresight.  Consulting with an attorney before you commence a business or real estate transaction could be the most valuable use of your time and money.  Because lawyers see lots of problems after they’ve occurred, they can usually provide some good guidelines on how to avoid them in the first place.  CAVEAT:  You cannot prevent litigation, but you can take steps to reduce the probability that it will occur.  The sooner you ask the question, the more benefit you will gain.

9.  WHAT IS THE BEST WAY TO PROTECT MY ASSETS?

There are many, many books and seminars available on the topic of “asset protection.”  Most of these are sold on the premise that you could “lose everything” in a lawsuit.  Novice real estate investors are frightened into spending thousands of dollars for all sorts of “asset protection” schemes that, in the long run, are often useless and unnecessary.  Selecting the correct entity for your business model, whether it is a C-corporation, an LLC, a limited partnership, has important consequences for accounting and tax issues, and in some cases may serve to provide you with an added degree of privacy.  But the two most important steps you can take to protect your personal assets are (1) good management practices, and (2) insurance.  The combination of these two factors work together to resolve almost all types of legal challenges, and as noted above, most cases settle before any judgments are handed down.  Statistically, the probability of anyone “losing everything” as a result of a lawsuit is extremely small, yet some people invest more money in asset protection schemes than they invest in real estate!

10. WHEN IS THE BEST TIME TO TALK TO A LAWYER?

Now. Really – now! If you’ve already made a decision to get involved in a business or real estate transaction, or want to get started investing in real estate, you need to have a lawyer on your “team” of professionals to consult as you go forward.  For the cost of an initial consultation, you could learn a lot about where your plan may need further review, what risks you may not have considered, and key questions to ask your investment partners before you proceed any further.  It may be the wisest investment of your time and money that you’ll ever make!