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Commonwealth of Massachusetts

NO. BD-2007-044


S.J.C. Order of Term Suspension entered by Justice Ireland on June 7, 2007.1


This matter was before the court on a stipulated recommendation for suspension based on the respondent’s misconduct as lenders’ attorney in a series of real estate transactions, as follows.

In 2003, Diane and Willie Rayford owned four multi-family houses in Dorchester, Massachusetts, each of which was encumbered by a mortgage to a different lender. The Rayfords lived in one of the houses. They had substantial equity in all the properties. During 2003, the Rayfords had financial difficulties and were in arrears in all their mortgage payments. By the fall of 2003, the properties were in foreclosure.

In the fall of 2003, the Rayfords entered into an arrangement with Leo H. Desire, Sr., a mortgage broker employed by Primary Mortgage Resource, Inc. (Primary), by which the Rayfords expected to save their properties from foreclosure and rehabilitate their credit. The Rayfords were represented by their own counsel in the arrangement.

Under this arrangement as is relevant to the respondent, the Rayfords agreed to convey each property to a straw buyer to be procured by Desire, who would also obtain new financing for the acquisition. From the proceeds, funds otherwise due the Rayfords would be deducted to pay all closing costs as well as fees to Desire or Primary. In addition, funds to cover the carrying charges on the property for twelve months after the conveyances would be deducted from the proceeds and placed in escrow by Desire. The remaining proceeds would be remitted to the Rayfords to pay off personal debts and improve their credit rating. During the twelve months after closing, the Rayfords would have the option to obtain new financing and regain title to the properties upon payment of a premium to Primary.

Desire arranged for Louis Joseph, a real estate broker, and Joseph’s sons, Pierre and Jean Joseph, to act as straw buyers and had them execute purchase and sale agreements for the properties with the Rayfords. Each agreement listed the sale price as $334,000, recited that the buyer had paid a deposit of $33,400, and provided for the buyer to pay the difference of $300,600 upon delivery of the deed. In fact, none of the Josephs paid any deposit on the properties. Desire also arranged for four mortgage loans of $300,600 each from four different institutional lenders (the new lenders) to finance the conveyances.

The respondent, on referral from Desire, was retained by the new lenders to represent them in closing the Joseph loans. During December 2003, the respondent received a set of closing instructions from the new lenders, each of which required the respondent, among other things, to collect or account for any deposit paid by the borrower; collect all funds due from the borrower at closing; pay off all existing mortgages and other encumbrances; prepare and have executed a HUD 1 settlement statement accurately setting forth all receipts and disbursements; provide the executed settlement statement and other closing documents to the lender after the closing; and record the borrower’s mortgage to the new lender, who was to be in first position. In addition, one or more of the lenders required the respondent to obtain prior approval from the lender if the seller contributed any amount to the borrower’s closing costs and obtain the borrower’s certification of intent to occupy the property after the closing.

By about early January 2004, the respondent knew that he would not be collecting deposits from the straw buyers and that they would not be bringing funds to the closings; that the funds otherwise paid by or due from the borrowers would be deducted from the Rayfords’ share of the proceeds; that a substantial amount of the proceeds remaining after paying off existing encumbrances, the respondent’s attorney fees, and fees charged by Desire for arranging the financing would be used to pay the new lenders’ mortgages and other carrying charges on the properties; and that none of the borrowers intended to occupy the properties. The respondent never informed any of the new lenders of the true terms of the conveyances and the loan transactions.

The respondent prepared or caused the preparation of HUD 1 settlement statements reflecting the terms of the purchase and sale agreements and other closing documents for the Rayford conveyances. On each settlement statement, the respondent listed a deposit paid by the borrower, an amount of cash to be collected from the borrower at the closing, and an amount of cash to be paid to the seller from the sale proceeds. The respondent knew that those entries were false and intentionally misrepresented the terms of the transactions on the settlement statements.

During January 2004, the respondent held closings at which the Rayfords executed deeds to the straw buyer for each property and the buyer, as borrower, executed a note and mortgage to the new lender. In the course of each closing, the respondent caused the parties to sign a certification that he knew to be false on the HUD 1 settlement statement of the truth and accuracy of the entries, and the borrower to sign a false affidavit of intent to occupy the property. On each settlement statement, the respondent certified that the statement was a true and accurate account of the transaction and that he had caused or would cause the funds to be disbursed in accordance with the statement. The respondent knew that his certifications were false.

After the closings, the respondent had the deeds and mortgages to the new lenders recorded and disbursed the loan proceeds. Although the HUD 1 settlement statements listed cash due the Rayfords from the four conveyances in the total amount of about $329,500, the respondent actually remitted a total of about $178,600 to the Rayfords and delivered all or virtually all of the remainder to Desire for carrying charges and Desire’s fees and commissions.

In late January or February 2004, the respondent provided to each new lender a set of closing documents for the corresponding transaction including, among other things, the false HUD 1 settlement statement and false affidavit of occupancy. The respondent did not disclose to the lenders that the HUD-1 statements and affidavits were false and intentionally misrepresented the true terms of the transactions to the lenders.

For one of the properties, the respondent had failed to ascertain the exact amount due on the Rayfords’ existing mortgage loan and failed to allocate or retain sufficient funds from the new lender’s proceeds to pay off that loan. As a result, the respondent never paid off the existing loan or effected the discharge of the existing mortgage on that property, and the new lender’s mortgage was not in first position. The respondent held the funds he had allocated for the existing mortgage on that property until early 2005, when he turned those funds over to new counsel then representing the Rayfords. The existing mortgagee subsequently foreclosed on and sold the property to a third party, resulting in loss to the new lender.

By failing to notify his new lender clients of the true terms of the transactions they were funding; intentionally misrepresenting the receipts, disbursements and other terms of the Rayford transactions in the false HUD-1 settlement statements; procuring the parties’ signatures to the false settlement statements and the Josephs’ false affidavits; certifying falsely the accuracy of the settlement statements; and delivering the false documents to the lenders, the respondent violated Mass. R. Prof. C. 1.4(a) and (b) and 8.4(c).

By failing to ascertain the amount due on the existing mortgage on one of the properties, failing to pay off the existing loan and discharge the existing mortgage on that property, disbursing the proceeds of the new loan and recording the new lender’s mortgage on the property without placing the new lender in first position, and failing to notify the new lender that the lender was not in first position on the property, the respondent violated Mass. R. Prof. C. 1.1, 1.2(a), 1.3, and 1.4(a) and (b).

In aggravation, the respondent had experience in the practice of law when he undertook the Rayford transactions, and one of the lender-clients was harmed by the respondent’s misconduct.

The respondent was admitted to the Massachusetts bar in 1983 and operated a practice with a concentration in real estate conveyancing. He had no history of discipline.

The matter came before the Board of Bar Overseers on a stipulated recommendation for a two–year suspension and the respondent’s acknowledgement that the facts and rule violations alleged could be proved by a preponderance of the evidence. The Board voted to accept the stipulation and recommendation. On June 7, 2007, the Supreme Judicial Court ordered the respondent’s suspension for two years, effective immediately.

1 The complete Order of the Court is available by contacting the Clerk of the Supreme Judicial Court for Suffolk County.

2 Compiled by the Board of Bar Overseers based on the record submitted to the Supreme Judicial Court.

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