Mother Suspended, Daughter Censured

A real-estate deal got an attorney suspended for one year by the New York Appellate Division for the Second Judicial Department.

The same transaction led to the public censure of the attorney’s daughter by the same court.

As to the mother

After studying a real estate investment course, the respondent, an experienced attorney-at-law, entered into a business partnership with a nonlawyer, Mark Vandeventer (hereinafter Vandeventer), aimed at investing in distressed properties. While searching for a suitable investment, the respondent learned of a potential property, which was owned by her friends, Mr. and Mrs. Raleigh Trent (hereinafter the Trents), residents of Virginia. The subject property was the Trents’ former residence, located at 32 Grove Street, Riverhead, New York (hereinafter the Riverhead property). The respondent had known the Trents almost all of her life, as they previously resided in the same Riverhead community, she attended school with the Trents’ children, the respondent’s mother worked with the Trents, and they worshiped at the same church. In contrast, Vandeventer was a relatively new acquaintance, whom the respondent met sometime in 2005.

In or about January 2006, the respondent and Vandeventer entered into negotiations with Mr. Trent to purchase the Riverhead property. At that time, the Riverhead property was not encumbered by any mortgage, but there were approximately $20,000 in tax arrears. No appraisal was conducted to determine the fair market value of the Riverhead property. Moreover, the Trents were not represented by counsel when the terms of the transaction were negotiated. The respondent acknowledges that Mr. Trent had limited experience in legal matters. Ultimately, the terms of the sale provided for a total purchase price of $82,500, consisting of a $5,000 down payment and a $77,500 seller-financed loan, evidenced by an unsecured promissory note. The purchasers were also required to pay the delinquent real estate taxes.

After the terms of the sale were negotiated, the Trents retained the respondent’s daughter, Annette Marie Totten (hereinafter Ms. Totten), to represent them in the sale. Although Ms. Totten was the sellers’ attorney, she did not draft the contract of sale (hereinafter the contract), which was forwarded to her by the purchasers. Ms. Totten neither proposed, nor made, any changes to the contract before forwarding it to her clients in Virginia. The Trents executed the contract as it was presented to them, without modification.

The Trents did not attend the closing. Rather, they authorized Ms. Totten to act as their attorney-in-fact, pursuant to power of attorney forms, which they executed. At the closing on February 14, 2006, the respondent and Vandeventer executed the aforementioned promissory note in favor of the Trents, evidencing the seller-financed purchase money loan of $77,500. Ms. Totten thereupon executed a deed conveying the Trents’ Riverhead property to the respondent and Vandeventer. In accordance with the contract, no mortgage or other instrument securing repayment of the foregoing promissory note was executed, delivered, or recorded.

Within three months, on May 10, 2006, the respondent ended her business partnership with Vandeventer, deeded her interest in the Riverhead property to him, and received a personal check from him in the sum of $40,000. That same day, Vandeventer secured a loan in the amount of $156,000 from Wells Fargo Bank, NA, and a mortgage was given and recorded against the Riverhead property. The promissory note in favor of the Trents was not satisfied at that time.

On or about February 28, 2007, Vandeventer obtained a further loan in the amount of $260,000 from Fremont Investment and Loan, which was secured by another mortgage on the Riverhead property. At that time, the Wells Fargo loan was satisfied. However, the promissory note in favor of the Trents was not.

On or about October 31, 2008, Vandeventer filed for bankruptcy, listing the unsecured promissory note to the Trents as an obligation. Vandeventer’s unsecured debt to the Trents was discharged in bankruptcy.

Notwithstanding the transfer of her interest in the Riverhead property to Vandeventer, the respondent admittedly remained responsible for the debt to the Trents. However, she has never honored her obligation under the unsecured promissory note, and the Trents have never received the consideration for their Riverhead property contemplated by the unsecured promissory note.

As to the violations

We find that the respondent’s relationship with her longstanding friends, the Trents, created the essential element of trust necessary to consummate the sale. Indeed, the respondent, an experienced attorney, negotiated the terms of the sale with Mr. Trent, an individual with limited experience in legal matters, prior to his retention of legal counsel. In doing so, the respondent deceptively secured disproportionately favorable terms that enabled her to purchase the Riverhead property without any financial contribution, and without disclosing to Mr. Trent the significant risk of loss if the seller-financed loan went unpaid. Moreover, shortly after obtaining title to the Riverhead property, the respondent knowingly released her interest in that property, in exchange for $40,000, without ever satisfying the promissory note to the Trents. Despite having made no financial contribution towards this transaction, the respondent personally profited. Further, her actions enabled Vandeventer to secure multiple loans on the Riverhead property, and directly contributed to the substantial financial loss sustained by the Trents.

Attorneys are held to a higher standard than nonattorneys in connection with their personal dealings. ” While a lawyer may engage in business, if he [or she] wishes to remain a member of the Bar he [or she] must conduct himself [or herself] in that business in accordance with the standards imposed on members of the Bar'” (Matter of Ushkow, 34 AD2d 159, 161, quoting Matter of Kaufman, 29 AD2d 298, 299). Indeed, an attorney’s actions should not “be measured by the standards of the marketplace alone. His [or her] conduct, while in some instances not involving an attorney-client relationship, [reflects] on the reputation of the Bar” (Matter of Madera, 39 AD2d 202, 205).

We find that the respondent knowingly engaged in conduct involving dishonesty, deceit, fraud, or misrepresentation, by her participation in the business investment in the Trents’ Riverhead property, which conduct adversely reflects on her fitness as a lawyer.

The daughter’s story

We find that, when the respondent represented the Trents in the foregoing transaction, her professional experience was principally in criminal law, and she had limited experience in real estate transactions. Notwithstanding the respondent’s knowledge of the Trents’ limited reading proficiency, she did not insure that they understood what was at stake in the absence of security for the seller-financed loan. The Special Referee found, and we agree, that “the terms of sale were . . . seriously skewed” against the Trents, and that the respondent never explained the inherent risks of the transaction to them. Although the respondent’s testimony indicates that she may not have fully understood the seller financing clause, the unusual and unfamiliar terms of this transaction should have signaled a need for the respondent to consult an attorney with greater experience in real estate transactions. The respondent’s failure to appreciate the inherent risk in an unsecured, seller-financed transaction, or to seek assistance from a more experienced attorney, put her clients at risk for the substantial financial loss that ultimately occurred. Consequently, we find, based upon a preponderance of the evidence, that the respondent failed to provide competent legal representation to her clients, which conduct adversely reflects on her fitness as a lawyer.

In light of the respondent’s familial relationship with Brown, one of the copurchasers of the Riverhead property, we further find that the respondent had a conflict of interest with respect to her representation of the Trents. Although the Trents may have known that the respondent was related to Brown, the respondent failed to establish: (1) that a disinterested lawyer would reasonably believe the conflict would not adversely affect the respondent’s representation, and/or (2) that the Trents received full disclosure of the implications of the respondent’s conflicting personal interests.

(Mike Frisch)