Legal Ethics

Relief for Lawyers in $20 M Lender Bounced-Checks Case

There is relief in sight for lawyers in Georgia and elsewhere who covered perhaps $20 million in bounced checks issued by a mortgage lender.

After hearing from Edwin R. Neel, a veteran Atlanta real estate attorney who said he put up his own home to pay for HomeBanc Mortgage Corp.’s rubber checks, a federal bankruptcy judge in Wilmington, Del., agreed to an unusual remedy to avert threatened fraud litigation against the liquidating lender.

U.S. Dist. Judge Kevin J. Carey will permit HomeBanc Corp. to surrender the mortgages it didn’t fund to the attorneys who did fund the loans, according to the Associated Press. That should soon allow the lawyers who funded the mortgages to obtain reimbursement by transferring the loans to other institutions.

Lawyers routinely accepted ordinary checks, rather than wire transfers, from HomeBanc and other big lenders on the eve of real estate closings, according to Neel. “If you didn’t do it that way, you didn’t do business in Georgia,” he said. His firm reportedly is holding $1.7 million worth of bad HomeBanc checks.

Because the checks went into escrow accounts, lawyers potentially would have violated attorney ethics rules if they didn’t make good on them, as an earlier post discusses.

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