We had a similar case in South Carolina in 1995
Real estate lawyers are the “Customers” of title insurance companies in South Carolina. In other parts of the country, title company customers are the consumers and businesses who buy and sell real estate and the lenders who loan funds to accommodate those transactions. But in South Carolina, title insurance companies sell their services to real estate lawyers.
I’ve been on both sides of title company – real estate lawyer equation, having been in private practice for about a decade and in the title insurance business almost three decades. Nothing is more important to the parties involved in real estate than protecting client funds. The scariest word to a title insurance company lawyer is “defalcation”, the misappropriation of funds by a person charged with protecting funds.
How does a title insurance company become responsible for funds in a real estate lawyer’s trust account? Title insurance companies issue Closing Protection Letters to lenders and others who seek the protection of a party with deep pockets for funds held in escrow by local lawyers. The lawyer is the title company’s agent, and the letter protects the lender if the agent fails to follow the lender’s written closing instructions or fails to protect escrow funds, and those failures result in title problems. If a lawyer vanishes with closing funds, the transaction cannot be properly completed, and the lender loses the benefit of the secured mortgage loan, typically after the lender has disbursed the funds to the closing attorney.
I was taught as a baby real estate lawyer that trust funds were sacrosanct. I was to never entertain the prospect that I could use those funds for personal purposes. I remember joking that I knew I was honest the first time I closed a $23 million transaction in the 1980’s. Later, as a baby title insurance company lawyer, I was taught that one of our main responsibilities was to help our attorney agents protect client funds. And, thankfully, almost every lawyer is absolutely committed to the process of protecting those funds.
But there are bad apples.
Harken back to 1995. Our office was contacted several times in the same week about missing closing packages, unrecorded mortgages and other mishaps revolving around closings handled by a single attorney. One call is probably an explainable and easily correctable mistake. Three or four calls indicate a genuine problem.
Calls to this attorney went unreturned. After a couple of days, it was “all hands-on deck” as our office learned that a Columbia lawyer had virtually vanished. We spent weeks in his office pouring over real estate and financial documents and months chasing down leads. Law enforcement and the Supreme Court’s Office of Disciplinary Counsel (ODC) got involved. The lawyer had disappeared, leaving an ex-wife and twin adolescent daughters in Columbia to pick up the pieces. Our office paid out almost $1 million to injured parties. In retrospect, that seems like a small sum based on later tales of woe.
This lawyer was missing for about three years. Then, he mistakenly used his real Social Security Number for a transaction in the accounting practice he had set up on the west coast and, Henry Richardson, the Disciplinary Counsel at the time, flew out west to retrieve him. He was eventually disbarred. We learned through that that he had not fled with $1 million in his pocket, as we had thought. The money had disappeared over the many years of his sloppy law practice. He fled with almost no money at all.
Why remember this case in 2021? Several news stories have been published recently about New York landlord lawyer, Mitch Kossoff, who has allegedly absconded with millions of dollars in escrow funds. (See, for example, “The curious case of the vanishing attorney” from TheRealDeal, May 12, 2021 and “Manhattan real estate lawyer Mitchell Kossoff facing N.Y. and U.S. criminal probes” from Reuters, May 26, 2021.)
I sincerely hope this lawyer turns up with the funds before innocent clients are hurt. In the meantime, clients have turned to the courts for help. One interesting case involves the lawyer’s mother, who alleges her son forged her signature to take out business loans. Counsel for the lawyer says he is not a fugitive, and that he will subject himself to the jurisdiction of the courts. This is definitely an interesting story that we’ll continue to follow.