Escrow Violations Lead To Suspension

A one-year suspension was imposed by the New York Appellate Division for the Second Judicial Department for misconduct in disbursing funds held in trust.

The attorney made premature disbursements in real estate transactions by using funds held on behalf of an unrelated family trust.

Although the attorney was inexperienced in handling entrusted funds and had no prior discipline, these kinds of violations get lawyers suspended:

Notwithstanding the mitigating evidence, the respondent’s release of escrowed funds prior to the closing in each of the aforementioned transactions, without the consent of both parties to the transactions, demonstrates his failure to honor his obligations as a fiduciary, in violation of Rules of Professional Conduct (22 NYCRR 1200.0) rule 1.15(a). Although the respondent may not have fully understood his fiduciary obligations, he is “held to the knowledge of the rules governing attorney [special] accounts” (Matter of Kosten Hui Feng, 78 AD3d 123). Furthermore, despite his claims to the contrary, we find that the respondent received a “direct benefit” from his conduct, inasmuch as his fee with respect to the Cohn Trust sale was paid in advance of the closing. Moreover, inasmuch as the respondent’s wife, Denise Tedeschi, and his sister-in-law, Marilyn Davis, are principals of both Gold Star and Lenart, the sellers in the Taylor Avenue and Colden Avenue sales, respectively, the respondent’s partial release of escrowed funds in connection with those sales inured to the benefit of members of his family.

Lesson: Funds are not to be paid out of escrow until the necessary deposited checks clear. (Mike Frisch)