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‘Huge’ Number of Lawyers Accused In Civil and Criminal Mortgage-Related Fraud Cases

Posted Sep 20, 2012 9:18 AM CDT
By Martha Neil

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There is a disturbing trend among the proliferation of mortgage-fraud prosecutions and civil cases that followed the meltdown of the real estate market in recent years.

Many of the defendants are lawyers, reports the Wall Street Journal (sub. req.).

Joseph Dunn, who serves as executive director of the State Bar of California, calls the involvement of lawyers in perpetrating mortgage-related scams a "huge" problem. Since 2009, the group has gotten over 11,000 mortgage-related complaints about attorneys. Over 100 California lawyers have been disciplined and another 200 or so are either facing legal ethics charges or being investigated.

Senior counsel Yolanda McGill of the Lawyers' Committee for Civil Rights Under Law, in Washington, D.C., says a national database of 25,000 complaints about suspected mortgage-related fraud includes more than 6,000 complaints against attorneys and law firms.

An attorney is a key participant in a mortgage scheme, says Craig Howland, chief of the Federal Bureau of Investigation's financial institutions fraud unit. That's because being able to point to a lawyer, who is sworn to uphold the law, "adds legitimacy" to the scam and thus can help ensnare potential victims. Howland says there are a number of pending FBI probes concerning lawyers.

As previous ABAJournal.com posts detail, numerous fairly low-profile lawyers who closed real estate transactions involving mortgage fraud have already been held criminally accountable. That apparently may be due, at least in part, to the relative ease of proving mortgage-related fraud through inaccurate closing documents for real estate sales and misstatements made about the disbursements of funds at closing.

Meanwhile, as many observers have commented in news reports, high-level defendants in major cases involving the mortgage meltdown are few and far between, despite widespread real estate-related fraud and an explosion of so-called robo-signing of mortgage foreclosure documents filed by plaintiff lenders in recent years.

A number of attorneys also have been held accountable, through attorney disciplinary cases and civil suits, for operating foreclosure-rescue businesses that reportedly obtain hefty up-front payments from owners trying to save their homes, but offer little in return.

Current and former lawyers who made headlines over criminal charges, convictions and/or sentences within the past year include two who got prison terms of six and nine years in federal court in Chicago this summer; a New York attorney who operated a title company and was criminally convicted and disbarred over his role in a real estate developer's $92 million mortgage fraud (a New York real estate closing attorney also lost his law license over the same developer's fraud, although the lawyer apparently didn't have any knowledge of the scheme); and a Connecticut lawyer who is also a rabbi who took a plea in a false-statement case for incorrectly reporting how funds would be disbursed at closing, in a case related to a disbarred attorney's more extensive mortgage fraud. Two more New York closing attorneys were convicted at trial in July, but say they did nothing wrong and plan to appeal.

A New Jersey lawyer earlier this month got seven years and was ordered to cough up nearly $200,000 in a case in which his counsel says he was paid only his legal fee. And two Florida attorneys who worked for a law firm that closed condominium sales took a plea in a straw-buyer case and could get as much as five years when they are sentenced.

A Florida closing lawyer nearing retirement age who took a plea in a mortgage-related money-laundering conspiracy case told the ABAJournal last year that she hoped to avoid prison due to her extensive cooperation with federal authorities and efforts to combat mortgage fraud.

“I've tried to do the right thing. ... I have cooperated with them, and I regret the decisions, and I wish that I had never stepped into this area," she said. "But it did. It happened. Unfortunately.”

A federal judge reduced her sentence substantially from the six-and-a-half years that guidelines suggested. But she still got over two years.

"In my judgment, when you commit a multi-million-dollar fraud even in an otherwise law-abiding life, you can't just say 'I'm sorry' and everything is forgiven," the judge said.

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