Ethics

Beware the Ides of March!

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We have three scary March 15 disciplinary cases

Three disciplinary cases* from March 15 of this year give us some timely reminders of activities we should avoid as lawyers.

Et tu, Brute?

The Brown case may be most on point for dirt lawyers. Attorney Brown practiced in family court. During testimony in a trial, a former client of Brown testified that her signature was not the signature reportedly sworn by a notary seal on the financial declaration filed with the court.

Here’s the scariest part of this story. After the trial, the family court judge reviewed several of Brown’s pending cases and found four documents attested to by Brown or her employee that appeared to be fraudulent. Brown self-reported to the ODC, acknowledged her misconduct, and signed an affidavit in mitigation. The affidavit stated that she had learned an important lesson, that she had attended several educational programs and had availed herself of Bar resources for new attorneys. She attested that she never intended to “mislead, misrepresent, or defraud anyone.” In other words, she was just trying to make things happen as quickly as possible for her clients.

The Court imposed a public reprimand and required Brown to pay the costs of the investigation and prosecution.

Dirt lawyers, no matter how much stress a closing creates, never, never fraudulently witness or notarize any document. You want to be able to testify in any deposition or court proceeding that you always appropriately monitored, witnessed, and notarized your clients’ documents. And it is not an excuse, as this case indicates that there was no intent to mislead, misrepresent or defraud anyone.  Take the time to handle documents appropriately every time.

The Williams case is a simple reminder to file and pay taxes. Williams failed to file and pay state income taxes for the 2015-2018 tax years. He was charged and arrested for this failure and timely self-reported his misconduct. He pled guilty, paid a fine, paid the taxes, and was sentenced to time served.

In mitigation, Williams stated that his mother’s mental and physical health began to deteriorate in 2012. He acted under  health care powers of attorney for both parents and cared for their needs as best he could while maintaining a busy law practice. He turned to alcohol “as an escape.” His mother died in 2018.  He stated he has been sober since 2019, has completed a six-week impatient treatment program, and regularly attends AA meetings. He also entered into a one-year monitoring contract with the Bar’s Lawyers Helping Lawyers program. He now serves as mentor to others in recovery.

The Court acknowledged its sympathy for Williams’ personal difficulties but imposed a definite suspension of ninety days.

Filing and paying taxes is one of those “black and white” functions that you cannot ignore. I once had a relatively wealthy real estate developer client who failed to file taxes for many years. That man, from a well-known and respected family, went to federal prison for several years. Paying taxes is not a step you can skip!

The Lynn case involved a disbarment for failure to hold unearned attorney’s fees in trust, for misappropriating client funds and for failing to keep clients informed. Read the opinion if you need a real Ides of March cautionary tale. One grave mistake Lynn made was failing to respond to the ODC’s investigation inquiries. Two things our Supreme Court takes very seriously are misappropriating funds and failing to cooperate with the ODC.

Let these sad facts be lessons to all of us! Just don’t do it!

*In the Matter of Brown, South Carolina Supreme Court Opinion 28139 (March 15, 2023), In the Matter of Lynn, South Carolina Supreme Court Opinion 28140 (March 15, 2023), In the Matter of Williams, South Carolina Supreme Court Opinion 28141 (March 15, 2023).

Texas Attorney General investigating Home Title Lock

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Several years ago, a prominent Myrtle Beach real estate lawyer called me to suggest that our (title insurance) company should develop a product like Home Title Lock. That company advertises that it alerts homeowners if fraudulent or forged deeds are recorded in their chains of title. I contacted corporate leaders to explore this idea, and it was quickly decided that the product was virtually meaningless.

Last week, another prominent Myrtle Beach-area lawyer emailed me with news that the Attorney General for Texas is investigating the company. Here the South Carolina dirt lawyer’s direct quote, “After the number of older clients I have had who come into a transaction confused and scared by the talking heads on conservative media who have been schilling for this company, I am glad to see law enforcement taking an interest.”

Ken Paxton, the Attorney General, apparently agrees. He issued a press release on January 24, stating, “I won’t tolerate false, misleading, or deceptive advertisements targeted to any Texas consumers—especially Texas seniors. If Home Title Lock is misrepresenting its services or the need for its services I will put a stop to its unlawful behavior.”

The AG announced an investigation of this company for potentially violating the Texas Deceptive Trade Practices Act by misleading consumers with deceptive statements concerning the prevalence of home title theft and the need for this company’s services.

The press release states that Home Title Lock is a California-based entity that claims to provide 24/7 monitoring of a consumer’s home title. (How could that even be done?) The press release states that the company has received scrutiny in recent months over questionable advertisements, including its claim that the FBI calls home title theft “one of the fastest growing white-collar cyber-crimes in America.” Apparently, Home Title Lock admits that it markets to “older customers.”                      

The Texas AG’s office issued a Civil Investigative Demand on December 15 ordering the company to make documents available substantiating the following, among other matters:

  • Any home title theft resolution services;
  • Representative samples of customer contracts;
  • The claim that the Company monitors the title of consumers 24/7;
  • The claim that the Company provides nationwide monitoring;
  • The claim that like other white-collar crimes, title fraud remains under reported with losses totaling more than $5 million in 2015;”
  • The claim that a victim is responsible for payments incurred due to a fraudulent home equity loan. (“Now thieves take out massive loans using your home’s equity-leaving you with the payments and mountains of legal bills;”) and
  • The claim that the company offers “complete protection – including up to $250,000 in legal fees and expense coverage.”

I’m so glad to see this investigation is starting, and I hope other states follow.

What should you do when faced with a letter from the ODC?

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This disciplinary opinion clearly sets out what not to do!

I’ve blogged before about Mike Goodwin, the “Bow Tie Comedian” based here in Columbia, who entertained us during lunch at Chicago Title’s seminar several years ago. I highly recommend Mike if you need a comedian suitable for a family audience. A joke that bubbled up through his very funny presentation was a line his mother used to keep him on the straight and narrow during his childhood, “what you NOT gonna do is…..” 

For example, she would say, what you NOT gonna do is to stand there and hold that refrigerator door open while you try to decide what you want to eat. During one lull in the laughter, Mike said to us, “what you NOT gonna do is sit there and not laugh at my jokes.” (So we laughed.)

Mike’s tag line came to mind when I read a recent disciplinary case* involving a real estate lawyer. This lawyer did exactly what he should not have done when the ODC contacted him.

This lawyer had been previously disciplined for financial misconduct in 2011. In that case**, he was given a public reprimand. He did not learn from his mistake.

In 2016, a client gave the check in the amount of $8,969. Just prior to the deposit of this client’s check, the balance in the lawyer’s trust account was $0.15. The lawyer negotiated nine checks to himself totaling $365. Then he issued a check to the client’s seller in the amount of $8,969. This check was returned as unpaid for insufficient funds, and the bank notified the ODC. The client also filed a complaint with the ODC.

Later, he misappropriated trust funds by writing checks to himself in amounts totaling just over $8,000.

What did the lawyer do in response to the ODC? Nothing!

  • He failed to respond to notices of investigation, despite being served with reminder letters.
  • He failed to respond to the court-appointed receiver after he was placed on interim suspension.
  • He failed to cooperate with the receiver and failed to produce client files and trust account files after being ordered to do so.
  • He failed to file an answer to formal charges.
  • (The Court didn’t say this, but his worst mistake may have been failing to hire a lawyer experienced in disciplinary matters.)
  • He failed to appear at his hearing.
  • He failed to file a brief taking exception to the report issued subsequent to the hearing, thus accepting the findings of fact, conclusions of law, and recommendations.

The Court, siting the central purpose of the disciplinary process is to protect the public from unscrupulous and indifferent lawyers, disbarred the lawyer. Learn well from this lawyer’s lack of action!

*In the Matter of Griffin, South Carolina Supreme Court Opinion 28124 (December 14, 2022).

**In the Matter of Griffin, 393 S.C. 142, 711 S.E.2d 890 (2011).

All the Rules of Professional Conduct are not intuitive

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…but this one is: be honest!

Some of the rules we learned in our professional responsibility classes in law school were problematic because they didn’t seem intuitive. I found the advertising rules to be particularly prickly. The rules surrounding financial recordkeeping require extreme attention to detail in accounting, and we went to law school because we aren’t strong in math, right? Even the rules surrounding competency require careful study for each practice area.

But Rule 407’s requirement of honesty is identical to the directive our parents imposed and, for that reason, absolutely intuitive. As lawyers, we must be honest in our professional relationships.

One lawyer learned this lesson the hard way according to a November 23 attorney disciplinary opinion from the South Carolina Supreme Court. *

This lawyer worked as a law clerk for a firm after graduation and became an associate attorney when he was admitted to practice in November 2017. He was paid on an hourly basis. The firm used computer software to track working hours in real time, and throughout 2018, the lawyer used software to clock in and out during times when he was not in the office or otherwise working to inflate his hours and increase his pay.

Fortunately, the lawyer did not bill clients directly, so no client overpaid because of his misconduct. At tax time, though, the lawyer’s supervising attorney discovered the discrepancy and confronted the associate. The total overpayment was just short of $18,000. After confronting the lawyer, the firm allowed the associate to self-report. His report included a signed restitution agreement in which he agreed to repay the law firm in full. 

The lawyer also filed an affidavit in mitigation, in which he expressed remorse and explained that his preoccupation with financial security arose from his disadvantaged upbringing. He said he was desperate to prove his personal worthiness and to achieve financial security. Those goals eclipsed his better judgment. He also stated he has worked with counselors to understand why he committed this misconduct.

He entered into an agreement for a six-month suspension, which the Court accepted. He was also required to complete the Legal Ethics and Practice Program Ethics School and to pay the costs incurred by the ODC in investigating and prosecuting the matter.

Stay honest out there, lawyers, and take the time to mentor young lawyers with regard to their ethical responsibilities.

*In the Matter of Jacob, South Carolina Supreme Court Opinion No. 28122 (November 23, 2022).

Representing elder clients can be tricky

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Dirt lawyers may be in the best position to protect elders in real estate transactions

Elderly persons should be treasured, not abused! And, as real estate lawyers, we may be in a particular position to guard against abuses.

Elder abuse often happens at the hands of family members or “friends” who, because of the vulnerabilities associated with age, such as mental impairment, are able to employ methods such as theft, fraud, forgery, extortion and the wrongful use of powers of attorney to separate an elderly person from property or funds.

Reflect upon the numbers of stories you have heard in your community about elderly persons falling prey to telephone scams. Those same individuals would not have succumbed in their prime. Even with all mental facilities in place, they don’t hear as well, they don’t keep up with changes in technology, and they are unable to keep up with fraud trends we all hear about every day.

Here are some signs of elder financial abuse that you may be able to detect in your office:

  • Sudden changes in an elderly person’s estate planning documents;
  • Changes made in the title to properties in favor of a “friend;”
  • Home health aide, housekeeper or other person is added to the accounts of an elderly person or is receiving an assignment of proceeds;
  • Family members or trusted “friend” discourages or interferes with direct communications with an elderly person involved in a transaction;
  • The older person seems unable to comprehend the financial implications of the transaction;
  • The older person signs documents without seemingly knowing or understanding what is being signed;
  • A power of attorney is involved. I’ve told this story many times, but I know a wonderful claims attorney who called powers of attorney “instruments of the devil”. Powers of attorney are extremely useful tools in the real estate world, but we should always exercise caution when they are used, especially when an elderly person is involved;
  • Anyone seems to be forcing the elderly person to act;
  • Numerous unpaid bills may be a clue that someone is diverting the money designated for the daily living of the elderly person;
  • Promises of lifelong care in exchange for property;
  • The elderly person complains that he or she used to have money but doesn’t understand why the money is no longer available;
  • The caregiver is evasive about the specifics of the transaction in the presence of the elderly person;
  • The elderly person seems fearful or reticent to speak in front of a family member, friend, loan officer, real estate agent or anyone involved in the transaction.
  • The accompanying family member or caregiver attempts to prevent the elderly person from interacting with others.
  • The elderly person and the family member or caregiver give conflicting accounts of the transaction, the expenditures or the financial need.
  • The elderly person appears disheveled or without proper care even though he or she has adequate financial resources.

Be mindful of these common-sense suggestions when any of your real estate transactions involve elderly persons. Think of them as you would want someone to think of your parents or aunts and uncles. Be careful to protect their interests. Proceed with caution!

Elders may also be the victims of predatory lending. Elders who own their homes and have built up equity over time become targets of predatory loan originators who pressure them in to high-interest loans that they may not be able to repay. Older homeowners are often persuaded to borrow money through home equity loans for home repairs, debt consolidation or to pay health care costs. These loans may be sold as “miracle financial cures” and are often packed with excessive fees, costly mortgage insurance and balloon payments.

Always discuss transactions directly with your elderly clients. Ask them pointed questions to make sure they understand the transaction.

And, as always, employ your instincts and your common sense.

EAO Opinion 22-04 gives real estate lawyers guidance on non-negotiated checks

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How we did it back in the day

Ethics Advisory Opinion 22-04 addresses a trust accounting question from a real estate practitioner.

The underlying facts are: “Due to the nature of a residential real estate practice, Lawyer frequently issues relatively small dollar amount checks from Lawyer’s trust account to both clients and third parties. A number of these checks are not timely negotiated, resulting in ongoing trust accounting maintenance costs, including labor costs, stop-payment fees and mailing fees for uncashed trust account checks that require stop payments and/or reissuance and re-mailing to the payee.”

This is an age-old concern. When I was in private practice (150 years ago or so), our law firm’s excellent bookkeeper chastised me monthly about the $5.00 check issued for mortgage satisfactions that never seemed to get cashed.

The lawyer poses the following question to the Ethics Advisory Committee: “May Lawyer charge an amount to cover administrative costs associated with stop-payment fees and trust account check reissuance and re-mailing fees for checks that remain outstanding for more than thirty (30) days after issuance?”

Thankfully, the Committee responded affirmatively.

The opinion states that a lawyer may charge a check recipient an amount to cover administrative measures undertaken to resolve the outstanding check, which includes expenses incurred such as stop payment fees and postage fees, provided the amount charged is not unreasonable.

Comment 1 to Rule 1.5 provides, “A lawyer may seek reimbursement for the cost of services performed in-house…by charging an amount that reasonably reflects the cost incurred by the lawyer.” The Committee opined that the lawyer may charge an amount against the recipient’s check to obtain reimbursement for the same, provided the amount charged is not unreasonable. To collect on the amount charged, Lawyer may deduct the amount to be charged from funds that remain in trust after adequate steps have been taken to cancel, void, or otherwise nullify the previously issued check…”

The Committee imposed one limitation by stating that the amount to be charged is limited to the total amount of funds that were paid by the outstanding check.

This opinion may provide a small amount of assistance, but the administrative nightmare remains. Small checks that fail to be negotiated will remain a monthly quagmire. But this opinion may allow law firms to at least recoup a portion of the cost.

Ethics Advisory Opinion advises lawyers: stay away from Expertise.com

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Ethics Advisory Opinion 22-02 fielded two marketing questions from a lawyer concerning a website, Expertise.com. This website finds and reviews service professionals and states that it researches businesses by using customer referrals, public records, accreditations and licenses and mystery shoppers.

Some law firms are listed on the site without the knowledge of the lawyers through the site’s unilateral research and screening. The site states that it lists businesses alphabetically, but it allows law firms to submit to be reviewed and included at no cost. The site indicates this process takes approximately one year to complete.  A law firm can also purchase a “featured placement” to take advantage of being seen first on the website page and to include links to the law firm’s social media.

The lawyer’s questions were:

  1. If an attorney or law firm pays for a featured placement on Expertise.com, does that attorney violate Rule 7.4(b) by holding the law firm and its attorneys out as experts by virtue of the website’s name?

2. Does paying for a featured placement on Expertise.com violate Rule 7.2(c)?

The Ethics Advisory Committee responded definitely: “Lawyer may not participate in any way in marketing via Expertise.com.” Actively participating in an online business listing at a website whose stock language violates the advertising rules is itself a violation of the advertising rules, according to the Committee.

The Committee referred to an earlier EAO: 09-10 which opined that a lawyer who adopts, endorses, or claims an online directory listing takes responsibility under the Rules for all content of the listing and general content of the directory itself, regardless of who created the material. While the prior opinion focused on comparative language contained in client testimonials and endorsements submitted to the website, the reasoning applies to content created by the host that violates some other rule, like 7.4(b), according to the current EAO.

Regardless of the creator of the offending content and regardless of which rule it violates, the Committee’s view is that a lawyer may not adopt, endorse, claim, or contribute to any online listing that contains language or other material that would violate the Rules if created and disseminated directly by the lawyer.

Paying for a featured placement within a business directory website is not itself a violation of Rule 7.2(c) if the payment obligation or amount is not tied to the referral of business as a quid pro quo, according to the EAO. In the Committee’s view, if a featured placement is the only benefit received in exchange, the payment would be a “reasonable cost of advertisement” under the 7.2(c)(1) exception.

However, the Committee believes a lawyer may not pay Expertise.com for a featured placement because that step would be prohibited by Rule 7.4(b).

Be careful out there, lawyers!

First Ethics Advisory Opinion of 2022 discusses “Land Title Dispute” email

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Is a unilateral non-client communication entitled to confidentiality?

We have our first Ethics Advisory Opinion of 2022 and it touches on a real estate matter.  In EAO 22-01, a lawyer posed a question to the Ethics Advisory Committee about an unsolicited email from an individual with whom the lawyer had no prior relationship.

The subject line of the email read “Land Title Dispute”. The email requested the lawyer’s “legal insight on a real estate situation” and included a description of the underlying facts with an inquiry of the lawyer’s opinion about whether the sender had a “legitimate claim.”

The lawyer immediately recognized that the facts recited in the message related to a matter in which the lawyer and the lawyer’s client had adverse interests to those of the sender. The lawyer replied to the email informing the sender of the adverse interests and stating that the lawyer could not represent the sender. The email further stated, “Please let me know if and when you are represented by other counsel and I will (be) happy to communicate with them regarding this matter.” The lawyer then took the opportunity to inform the sender that the lawyer believed the sender’s “proposal to profit off of this mistake is both theft and fraud.”

The lawyer asks the Committee whether the lawyer has an ethical obligation to maintain confidentiality of the information in the email since it was provided in the course of seeking legal advice.

The Committee first stated that the sender was neither a current nor a former client of the lawyer. The answer to the question depended on whether the sender is a “prospective client” under Rule 1.18. This rule reads: “A person with whom a lawyer discusses the possibility of forming a client-lawyer relationship with respect to a matter is a prospective client only when there is a reasonable expectation that the lawyer is likely to form the relationship.” Comment 2 reads: “Not all persons who communicate information to a lawyer are entitled to protection under this Rule. A person who communicates information unilaterally to a lawyer without any reasonable expectation that the lawyer is willing to discuss the possibility of forming a client-lawyer relationship, therefore, is not a “prospective client” …

The Committee concluded that the lawyer had no ethical obligation to maintain confidentiality of the information in the email.

This is excellent news! We’ve all heard stories of an individual about to seek a divorce who holds meetings with all the divorce lawyers in town to limit the spouse’s choice of counsel. Thankfully, that tactic should not extend to an unsolicited email.

Happy New Year!

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Watch out for those recurring dreams…

And don’t forget the mortgage subordinations!

As the last blog of the year, I thought I’d tell you the story of one of my recurring dreams, or more accurately, one of my recurring nightmares, for your entertainment.

Do you have recurring dreams? I grew up in Georgetown where everyone makes routine pilgrimages to Charleston for shopping, dining, and medical appointments. My first recurring nightmare as a child involved the fright of crossing that rickety, two-lane bridge between Mt. Pleasant and Charleston. Thank goodness that monstrosity was replaced by the beautiful suspension bridge we cross today!

Later came the dreams involving college at Carolina. I dreamed I couldn’t get into the mailbox in my dorm. I have no idea why I had that dream because nothing very important was ever there. I dreamed my meal card wouldn’t work but that was also a useless dream because missing those dorm meals would have been no great loss.

Then came law school. In those dreams, it was always time for the exam for a class I had forgotten I signed up for. A more accurate dream would have involved a class I knew I signed up for but failed to attend class because I didn’t understand a word the professor said (think international law). Thank goodness my boyfriend had a great “skinny” on that topic and I somehow made it through that class. And I later married that boy.

But my most vivid recurring dreams involve my professional life, and the stories are always based in fact. I’ll tell you the factual, not the fantasy version of this dream. And I’ll avoid the names for attorney-client and other confidentiality reasons. This is the biggest professional mistake I made or, more accurately, the biggest professional mistake I made that I know about. As dirt lawyers, we plant time bombs every day, right?

I represented real estate developers. They developed malls, shopping centers, residential subdivisions, residential condominiums, outlots for McDonalds and other fast-food restaurants and other properties. The story involves a very large tract that was developed into an upscale residential subdivision, a Walmart, a movie theater, a church, and a shopping center.

The development was complicated. It involved environmental issues that could have derailed the entire project. Multiple individuals formed various entities for buying, holding and selling the real estate. The underlying property was purchased from the Federal government, which created its own set of complications. The acquisition, for example, involved a bid process that was foreign to me at the time.

It all finally fell into place, and the residences and businesses are still in place in 2021.

The problem that I thought might derail my career came to light when one of the individual developers declared bankruptcy. When that happened, every legal step I had taken for that person in the prior three years was scrutinized. The main lawyer scrutinizing my work, along with a team of associates, was a law school classmate, and, thankfully, a very kind and smart lawyer. But I spent lots of time worrying that I had missed something important.

I can remember the phone call from my friend all these years later down to the clothes I was wearing and the coffee cup in my hand.

The commercial properties required easements because of the private roads the properties shared. They also had easements for maintenance, pedestrian access, shared utilities, etc. Here’s the pitfall. When properties with these legal connections are owned and mortgaged separately, the lenders almost always must subordinate their mortgages to the easements to ensure the easements remain in place in the event of foreclosure, or in this case, bankruptcy.

I knew that!

I routinely obtained mortgage subordinations at every step of the development, except for one commercial tract. To this day, I have no idea how I missed one set of subordinations. And I think I lost several years off my life between the phone call from my kind classmate until I was able to obtain the subordinations very much after the fact. I was very lucky because the lender I had to approach (hat in hand) was a local lender. I even knew the person I had to persuade to cure my problem. And the good Lord must have smiled on me that day because it all worked out. I kept my license and my clients.

So, as I wish you a very happy, healthy, and prosperous 2022, I remind you to avoid the mistake I made. Always obtain the necessary mortgage subordinations!