Less Than Disbarment

The New Jersey Supreme Court imposed a two year suspension for an attorney’s bank fraud conviction, rejecting the proposed disbarment of the Disciplinary Review Board.

The DRB described the offense

Here, it is undisputed that respondent, as the closing attorney, and a lawyer who, for decades, maintained a high-volume real estate practice, knew that he had a fiduciary duty to safeguard the reverse mortgage proceeds – funds which both the lender and the vulnerable homeowners, but not his coconspirators, had an interest. Rather than disburse the loan proceeds to the homeowners, in accordance with the lenders’ explicit closing instructions, respondent intentionally misappropriated the funds by diverting them to his coconspirators as he saw fit, without the knowledge or permission of the lenders.

Indeed, as in Hand, respondent concealed his role in the conspiracy via the submission of fraudulent HUD-1 forms, which induced seven separate lenders to wire a total of more than $579,000 in reverse mortgage proceeds to his
escrow account, based on respondent’s false certification that he would disburse the proceeds in accordance with the lenders’ instructions. Respondent, however, brazenly disregarded the express instructions of the lenders and distributed the proceeds to his co-conspirators, rather than to the elderly borrowers. In so doing, respondent knowingly misappropriated the lenders’ entrusted loan proceeds, engaged in fraud on the lenders by leading them to believe that he had disbursed the proceeds to the borrowers, and assisted his co-conspirators in absconding with the reverse mortgage proceeds, leaving the vulnerable homeowners without the funds to which they were entitled and without the home repairs they sought.

Contrary to respondent’s position, and as we noted in Hand, the proposition that an attorney who, while serving as an escrow agent, knowingly diverts reverse mortgage loan proceeds to their co-conspirators, in direct violation of a lender’s closing instructions and in furtherance of a criminal scheme, is not a new rule under Hollendonner and, thus, does not require prospective application. See Hand, DRB 21-015 at 28 (finding that Hand’s decision to illegally disburse mortgage proceeds in contravention of a lender’s escrow instructions was “not a novation . . . requiring prospective application). Rather, as we observed in Soriano, respondent’s breach of his fiduciary obligations as the escrow agent in connection with at least ten reverse mortgage loan transactions constitutes a clear and classic violation of the principles set forth in Hollendonner.

CHIEF JUSTICE RABNER and JUSTICE PIERRE-LOUIS voted to disbar respondent. (Mike Frisch)