New York landlord lawyer vanishes in 2021

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.

SC lawyer disbarred despite vastly divergent views on sanction

I’ve often said that title insurance underwriting is an art and not a science. A lawyer facing a title defect issue might obtain different opinions from different title companies and even from different lawyers employed by a single title company.

During my 28-year career as a lawyer for a title company, I have often joked that I try very hard to agree with myself!

If a lawyer calls to describe a title defect and says, “Claire, this is bad, isn’t it?”, it’s easy for me to agree. The closing attorney is, after all, often the best judge of marketable title in the community. But what if a different lawyer calls weeks later with basically the same facts, and explains why the defect is technically a problem but won’t cause a claim from a practical standpoint? That lawyer may be more familiar with the opposing parties or the history of the property. The underwriting answer may be different. Or what if the second lawyer says, “this is my best client” and asks for a one-time favor? You see where I’m going here. Answers may vary on the same facts, and an underwriting attorney can easily get into trouble with her agents!

But I thought attorney discipline issues in South Carolina might be addressed with more consistency. If you have that opinion, please check out this October 7 opinion from our Supreme Court*.

I don’t know this lawyer, but he apparently had a successful litigation practice across many decades. In 2013, he was placed on interim suspension when a former associate filed a complaint alleging operational and case management issues, including concerns relating to the mismanagement of his trust account. The lawyer filed a petition for reconsideration, and the suspension was lifted with conditions. Notably the lawyer was prohibited from accessing or controlling the law firm’s trust and operating accounts. An associate was made responsible. (Huh? A senior partner who manages an associate couldn’t touch the trust account, but the associate could?)

Six years later, in 2019, formal charges were filed by the Office of Disciplinary Counsel. There was much discussion in the case about the ODC’s delay and whether that delay was a mitigating factor.

The underlying facts indicate that prior to 2012, the lawyer allowed his staff to routinely disburse funds from the trust account for operating expenses. Disbursements were made before deposits, funds were comingled, and funds were missing. A law firm formed by former associates demanded trust account funds for a particular client, and the funds were not available until this lawyer infused personal funds into the account

There was never a client complaint and, apparently, no client actually lost funds.

But the differing opinions about the appropriate sanction makes this case remarkable. The panel of the Commission on Lawyer Misconduct recommended a suspension of six weeks. In a dissent, Justice Hearn said she would impose a one-year suspension in light of the lawyer’s lengthy, unblemished disciplinary history and the prejudice sustained by the delay of the ODC.

In an opinion authored by Chief Justice Beatty, the majority disbarred the lawyer and chastised the ODC for its delay. The majority said that the delay was not prejudicial because the lawyer was allowed to practice law in the interim. An interesting added fact is that $21.5 million passed through the trust account since 2013.

In a concurring opinion, Justice Few said the case had nothing to do with Rule 417, the financial recordkeeping rule. Rather, he stated this lawyer stole client money from his trust account. Justice Few also said the delay of the ODC was the failure of the Court to supervise the professionals the Court employs.

So try to wrap your legal, logical brains around this. The panel recommended a six-week suspension and Justice Hearn recommended a one-year suspension on facts where Justice Few said the lawyer stole money from clients.

Apparently attorney discipline, like title insurance underwriting, is an art and not a science!

* In the Matter of Wern, South Carolina Supreme Court Opinion 27998 (October 7, 2020)

It’s a matter of trust: Two South Carolina lawyers disciplined for trust account problems

Fraudulent oil rig sale triggers nine month suspension

The South Carolina Supreme Court handed down two Christmas season lawyer disciplinary cases involving trust accounting failures on December 20*. In a twist on the now common tale of fraudulent real estate transaction targets, one of the cases involved a fraudulent oil rig sale.

oil rig

Attorney Bell was hired to negotiate the purchase of an oil rig in Oklahoma by NTB Management and Control, LTD (NTB), an Israeli company. Although NTB is a legitimate company, the purchase of the oil rig was a fraudulent transaction.

The fee agreement provided for a retainer of $21,000 plus hourly fees, but Bell never received the retainer. Instead, NTB advised him that insurance proceeds due NTB would be wired to his account for expenses related to the purchase of the oil rig. A wire of $48,600 from Liberty Company Insurance Brokers (Liberty) soon arrived in Bell’s trust account at Wells Fargo. This wire was initiated by an email scam perpetrated on NTB. NTB’s USA director, Roland Nelson, asked Bell to give him cash from these funds to pay NTB’s third-party vendors.

Pursuant to Nelson’s instructions, Bell paid two of NTB’s third-party vendors. On the same day, Bell withdrew $8,000 in cash from his Wells Fargo trust account. Bell gave Nelson $500 of this amount for his hotel bill, and deposited the remaining $7,500 into his trust account at Bank of America. He then transferred funds to the second vendor’s account and paid himself $8,500 in fees by two online transfers from his Wells Fargo trust account, one to his operating account and another to his personal checking account.

During an angry telephone call, Nelson claimed the vendors had not been paid and threatened to cut Bell’s throat. Bell decided to terminate the relationship and to withdraw the balance from his Wells Fargo trust account. He forgot to account for the transfers he made for his fees, so he believed the balance of the account was higher than it actually was. He signed a cash withdrawal slip for $33,987.43 to purchase a cashier’s check made payable to his firm and deposited the check into his Bank of America trust account. Once these transactions were processed, Bell’s Wells Fargo trust account was overdrawn by $8,485.

When Wells Fargo contacted Bell about the overdraft and the fraudulent wire, Bell agreed to return the $33,987.43 to his Wells Fargo account and authorized the return of the account balance equal to $25,467.43 to Liberty. He elected to retain the $8,500 in fees he paid to himself, claiming he failed to understand from his conversation with Wells Fargo that the funds belonged to Liberty. He later admitted he failed to ask questions.

In addition to the issues of cash withdrawals from trust accounts and insufficient financial recordkeeping, Bell also failed to respond fully to the Office of Disciplinary Counsel’s (ODC’s) demands for information. He was suspended for nine months and required to complete ethics and law office management courses.

In the other December 20 disciplinary case, The Supreme Court disbarred an attorney for failing to maintain adequate financial records, for making cash withdrawals from his trust account, for converting trust account funds to personal use and for providing false information to the ODC.

South Carolina lawyers should absolutely understand by now that the Supreme Court and the ODC are extremely serious about trust accounting rules.

*In re Bell, South Carolina Supreme Court Opinion No. 27755, and In re Johnson, South Carolina Supreme Court Opinion No. 27756, both dated December 20, 2017.

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trust account

New York landlord lawyer vanishes in 2021

SC lawyer disbarred despite vastly divergent views on sanction

It’s a matter of trust: Two South Carolina lawyers disciplined for trust account problems