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Commonwealth of Massachusetts

Public Reprimand No. 2008-17


Order (public reprimand) entered by the Board August 19, 2008.


When an unexpected drop in available funds caused a client to fall behind on a home mortgage, the respondent agreed to co-sign a new mortgage loan with the client in exchange for six monthly payments of $500 plus $1,500 to pay his outstanding fees for prior representation. The respondent was to take these payments from the loan proceeds and to hold additional proceeds to service the mortgage and to pay other property expenses. He would be released from mortgage liability once the client recovered the ability to finance in her own name. The written agreement that the respondent prepared and that he and the client signed incorporated these terms and permitted a sale of the property if the new mortgage loan fell in arrears.

In light of the client’s financial condition, existing mortgage debt, and two recent re-financings, a reasonable person would have recognized the high probability that the client would not obtain re-financing. Even with the respondent as co-maker, lenders rejected the client’s mortgage loan applications.

On the advice of mortgage brokers, the respondent’s assistance was re-structured as a purchase from the client, on the understanding that the client would remain in the home and retain the beneficial interest. The respondent did not amend the written agreement with the client to reflect these changes.

The committee found that the respondent did not conceal the upcoming transfer of title, but he did not fully explain the revised transaction or the conflict of interest it presented. The client did not fully understand the transaction and its implications and did not give informed consent to the conflict. Despite a continuing attorney-client relationship arising from the prior representation and the client’s reliance on the respondent’s legal advice, the respondent did not explain the restructured transaction in writing, did not obtain assent to its terms in writing, and did not give the client a reasonable opportunity to obtain independent legal advice. During his testimony, the respondent admitted in substance that the restructured transaction was not fair to the client because of the financing terms.

The respondent and the client executed a purchase and sale agreement. The respondent obtained a mortgage loan, he took legal title in his own name, and he granted a first mortgage to the lender. He also granted a second mortgage to the client to create the appearance of an arms-length transaction. He used loan proceeds to pay closing costs and related expenses and to pay himself the $4,500 in fees originally agreed. He held the balance in his IOLTA account to service the property.

A few weeks later, the client asked the respondent for some of the loan proceeds to use as a down payment on a mobile home in Maine and for other expenses. Before the client moved to Maine, the respondent obtained the client’s discharge of the second mortgage without having made any payments towards it, without having obtained informed consent to his conflict with the client, and without having fully explained the discharge. The hearing committee found that obtaining the discharge was unfair because it deprived the client of important rights.

The respondent exhausted the remaining loan proceeds on a combination of expenses, including payments on the mortgage loan and extensive repairs necessary to market the property after the client had moved out. As of the date of the hearings, the respondent had suffered a net loss on the property of more than $35,000, and he had been unable to sell the property despite successive price reductions.

The hearing committee concluded that the respondent’s representation of the client in connection with the sale and mortgage transaction conflicted with his personal interests and was not accompanied by informed consent, in violation Mass. R. Prof. C. 1.7(b), and that the respondent had entered into an unfair business transaction with a client that was not accompanied by the safeguards of Mass. R. Prof. C. 1.8(a). The respondent also violated these rules when obtaining the client’s discharge of the second mortgage.

The hearing committee concluded that this case did not warrant a suspension where the respondent had no predatory intent and the client was not harmed. While the respondent collected his outstanding fees and the additional charges, he did not enter into the transaction to obtain the equity in the real estate at the client’s expense. Before transferring the home to the respondent the client anticipated losing it. The respondent pursued the client’s goals and benefited the client by preserving the home for months, by relieving her of substantial mortgage liability, and by paying her some of the loan proceeds that were to have been held to service the property. The respondent’s actions did not prevent the client from realizing greater equity at a private sale because the client had been unable to sell the property, and there was no credible evidence that the second mortgage reflected actual value above the mortgage loan proceeds.

The hearing committee recommended that the respondent be publicly reprimanded. Neither party filed an appeal from the hearing committee report. On August 11, 2008, the Board of Bar Overseers voted to accept the committee’s findings, conclusions, and recommendation.

1 Compiled by the Board of Bar Overseers based on the record of proceedings before the Board.

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