Retainer

A retainer is an upfront fee paid to an attorney or other professional to secure their availability and services for a specific engagement. In mortgage note investing, retainers arise most frequently in the context of foreclosure proceedings, where an attorney is engaged to enforce the lender's rights against a defaulting borrower. The size of the retainer, the structure of the fee arrangement, and the timing of engagement are all variables that experienced note investors manage carefully to control costs and preserve flexibility.

How Retainers Work

When you engage a foreclosure attorney, they typically require a retainer before beginning work. The retainer is deposited into the attorney's trust account and drawn down as work is performed. Once the retainer is depleted, the attorney may request a replenishment before continuing.

There are two common retainer structures in note investing:

Most foreclosure attorneys require an initial retainer of approximately $1,500 to $2,500 to begin proceedings, though the total cost of a foreclosure can range from $2,000 in fast non-judicial states to $10,000+ in slow judicial states with contested cases.

Strategic Engagement: A La Carte vs. Full Retainer

One of the most practical cost-management strategies for note investors is engaging attorneys on an a la carte basis before committing to a full retainer. The typical approach:

1. Demand letter only — Engage the attorney to prepare and send a demand letter (notice of default / notice of intent to foreclose) as a standalone service, usually for $200–$400. A letter on law firm letterhead often produces borrower engagement that months of servicer outreach could not.

2. Pause and attempt resolution — If the borrower responds to the demand letter, pause legal proceedings and negotiate a workout: loan modification, payment plan, discounted payoff, or deed in lieu.

3. Full retainer if needed — If the borrower does not respond or refuses to cooperate, engage the attorney on a full retainer for foreclosure. The demand letter has already been sent (a legal prerequisite in virtually every jurisdiction), so the process can proceed to the next stage without delay.

This phased approach can save thousands of dollars per loan. Many deals resolve after the demand letter alone, and committing a full retainer upfront on every loan ties up capital unnecessarily.

Communicating Strategy to Your Attorney

Some attorneys default to handling the full foreclosure from engagement through sale and will request a large retainer upfront with that expectation. If your strategy is borrower outreach and resolution — not immediate foreclosure — communicate this clearly at the start of the relationship:

• State your preferred resolution path — Explain that you want to attempt a workout before pursuing foreclosure
• Ask about a la carte pricing — Not all attorneys offer this, but many will accommodate investors who bring volume
• Request flexibility to pause — If the borrower engages at any point during the legal process, you want the ability to pause proceedings and negotiate
• Build volume relationships — Working with one attorney across multiple accounts and multiple states gives you leverage to negotiate better rates and more accommodating fee structures

Retainers as Corporate Advances

From an accounting perspective, attorney retainers and legal fees paid during the resolution process are classified as corporate advances — costs advanced by the lender that are recoverable from the borrower under the terms of the loan documents. If the loan is resolved through modification or payoff, these costs can be added to the borrower's outstanding balance. If the property goes to foreclosure sale, they are recovered from the sale proceeds (subject to available equity).

Tracking legal costs accurately is essential for portfolio management. Every dollar spent on attorney fees reduces your net return on the asset, making the decision of when and how to engage legal counsel one of the most consequential operational choices in note investing.