Editor's note: How do you find a lawyer who doesn't rip you off?
Unfortunately, it's all too common to end up paying much more than you expect to when a lawyer is involved. Knowing the most common ways lawyers take advantage of their clients can help you be prepared... and avoid paying overly expensive legal fees.
So in part two of our series from his December 2 Creating Wealth e-letter, Mark Ford – self-made millionaire and founder of our corporate affiliate The Palm Beach Letter – looks at eight common ways lawyers can "steal your money." And he shares the three rules to finding and using a good lawyer.
Let's look at a few specific ways some lawyers take advantage of their clients. Though you won't always be able to see them, knowing the most common ways can help you be prepared.
1. Double billing
Double billing is when a lawyer charges two or more clients for the same hour of work.
It happens all the time. A 2007 survey from Samford University's Cumberland Law School found that about 35% of lawyers engaged in double billing. The American Bar Association prohibits the act.
2. Padding hours
It's standard that lawyers must bill clients for at least 2,000 hours per year. This, along with a healthy dose of greed, causes lawyers to pad their hours.
One example of a bold over-billing scheme took place in Baltimore. An attorney named Stanford D. Hess admitted to adding 15% to every hour billed to his client, Fairfax Savings Bank.
Other common tricks lawyers use to pad their hours: They do menial work that a paralegal or assistant could do, but charge their much higher hourly rates. If the client asks for an itemized bill, they just round upwards. Or they simply use a multiplier when tallying their time sheets. After all, who is to say they didn't spend 25 hours writing a memo?
3. Charging for overhead
In 1933, the American Bar Association mandated that, "A lawyer may not charge a client for overhead expenses generally associated with properly maintaining, staffing, and equipping an office."
But as we read earlier, lawyers often do things that the Bar Association forbids.
What that means is many times lawyers will charge clients for meals, office supplies, secretarial overtime, office utilities, and taxis. These expenses are totally unrelated to work required for that specific client.
4. Expense accounts
Expense accounts make it easy for lawyers to charge more than they should. They can claim reimbursements for plane tickets, meals, hotels, and other extravagant travel accommodations (as long as it is for one of their cases). The problem is often times... there's no travel involved.
It's not totally uncommon for a lawyer to claim reimbursement for a first-class flight and a Ritz-Carlton stay. But, in reality, he really flew coach and stayed at a Best Western... and just pocketed the difference.
5. Inflated rates
How much is having excellent counsel in an important court case worth to you? Would you pay your attorney $1,285 per hour?
According to The National Law Journal, that was the highest hourly billing rate in 2012.
No matter how great an attorney's record is, never pay this much. The average hourly rate for a lawyer is about $200-400 per hour, according to lawyers.com.
6. Trivial tasks
Law firms will occasionally bill clients for low-level tasks.
Some clients have caught law firms billing them for unnecessary work. In one case, a prestigious New York law firm billed a client for using a $190 per hour paralegal to deliver a letter to court.
7. Negligence or malpractice
It is a lawyer's duty to handle a client's case in a careful manner to avoid causing harm to the client or their property.
Unfortunately, this doesn't always happen. For example, take "upfront fees"...
Whenever you pay upfront fees (you pay the lawyer before he renders his services), the lawyer will gladly accept your money. The problem is he or she doesn't have to work for it. And sometimes, he or she would rather just take your money without ever doing the work.
This happened in several foreclosure cases in 2012. A client would pay a lawyer upfront to arrange a mortgage modification. And the lawyer would disappear after receiving payment.
8. "Sleepworking"
Some clients may think that lawyers are super-human. Especially when they get the bill. "How did my lawyer log that amount of hours on my case alone?"
Well, he or she probably didn't.
Here's an example... One Chicago lawyer charged his clients for about 5,500 hours in a single year. Not counting weekends, there are about 260 working days per year. That's 6,240 hours available if you worked around the clock for a full year. Was this lawyer really putting in 21-hour days? Or billing his clients while asleep?
How to Find and Use a Good Lawyer
You can see that there are many factors to consider in getting the best representation for your buck. So how do you find a good lawyer who doesn't rip you off?
The first rule: Never hire a lawyer only because someone has told you he is "the best in the business." That means he is extremely expensive and knows 100 ways to rack up his fees. Unless you are a celebrity (in which case helping you out will be a credit to him), there's a good chance the fancy lawyer will sell you down the river while he's charging you huge fees.
The second rule: Never hire a lawyer whose office is bigger and nicer than your home. A lawyer's office is like a casino. The nicer it looks, the worse it is for you. Someone has to pay for that fancy furniture. That someone is you.
And my third rule is this: Control their time. Get them to give you a fixed price in advance. If you can't do that, then ask them to give you an estimate, and lean on them to keep to it.
I interview only lawyers whom my friends recommend. And then I won't hire them unless I like them and I feel like I'd want to hang out with them.
There are plenty of great lawyers out there. Unfortunately, there seem to be just as many lawyers who are more interested in your wallet than your legal need. But by following the guidelines I've mapped out for you today, you can significantly reduce the odds of being "taken" by this "Wealth Stealer."
Best,
Mark
Editor's note: There's another great "rip off" taking place in America right now... one almost no one is talking about. Bankers are earning (and keeping) up to 30 times more interest than what they pay you... legally. Mark's team at The Palm Beach Letter recently investigated the issue and found a way for you to lock in these "banker's returns," too. Click here for the full details.