Almost everyone will own property at some point in their lives, and whether the purchase is residential or commercial property, in South Carolina a lawyer will handle the “closing” for the buyer.
Unfortunately, closings do not always go as planned and attorneys sometimes handle transactions for which they had undisclosed or unrealized conflicts of interests. Other times attorneys are merely negligent in handling the transaction for their clients (usually the buyer).
If you have been the victim of fraud and / or negligence by your closing attorney, your home may not be worth what you paid for it, and the “equity” you thought you had in your home may not be there, or you may not even own your property.
Your attorney may have breached his duties to you if:
- He failed to disclose conflicts of interest, such as prior or ongoing relationships with the seller, a broker, a sales agent, or other parties related to the transaction; or
- He failed to disclose all material facts related to the transaction, for example, if the property was recently sold at a much lower price, sometimes known as a “flip” transaction; or
- He or she failed to discover a lien on your property, such as a tax lien or an easement granting others the right to use your property for certain purposes; or
- You have good reason(s) to believe that the attorney did not act in your best interests as the law requires them to do.
What is Legal Malpractice?
- In South Carolina and in most all other states, an attorney owes his or her clients the utmost legal duty, known as a Fiduciary Duty.
- In South Carolina, to bring a legal malpractice claim the plaintiff must have an expert opine in writing to be filed with the complaint that the applicable standard of care was breached.
Mortgage Fraud and Real Estate Malpractice:
The phenomenon of “mortgage fraud” became an FBI priority in or around the year 2000-2001, shortly after a vast supply of money became available as part of a policy to increase home ownership rates. Regardless of the policy behind this, the effect was that a great number of unscrupulous mortgage brokers seized the opportunity to make a good bit of money by churning properties and putting buyers in these properties that probably should never have qualified for the loan in the first instance.
Not all real estate malpractice involves mortgage fraud, although experience tells us that the fraudulent brokers and property flippers know which attorneys they can take their work to for quick, and many times sloppy or careless closings.
Our South Carolina Supreme Court has required an attorney to handle all property closings because it has held that recording legal documents like mortgages and deeds are the “practice of law.” The primary policy behind this is to protect the consumer, which is usually the buyer. Our experience tells us, however, that purchasers of property are not the only victims of mortgage fraud and legal malpractice. The lenders are also owed duties by the closing attorneys, and may have substantial claims as against the closing attorneys and others for breach of contract (closing instructions), closing protection letters (as against the title companies), or other claims for wire fraud, conspiracy, etc. Many times, the work on these types of files involves cooperation with law enforcement and parallel tracks of civil and criminal cases.
Our Experience – Four Examples:
Example 1 – 2001 to 2003 upstate scheme
In 2001-2003, Mr. Few lead the way to some of the first mortgage fraud prosecutions in South Carolina, representing a national lender and bringing suit involving well over a hundred fraudulent loans. As a result of cooperation with law enforcement, several of the perpetrators plead guilty to federal wire fraud and other crimes, and the client recovered from these individuals as well as the malpractice insurance of the attorneys that handled the transactions.
Example 2 – 2004 upstate broker scheme
In or around 2004, an upstate mortgage broker sent many loans to the same closing attorney that handled all the transactions in the lawsuit. The relationship was so cozy that the attorney allowed the broker to record many of the deeds and mortgages. As with the above example, once these loan packages were inspected more closely, it was discovered the that borrower’s income and assets had been inflated, and also that the appraisals were all but dictated by the brokers or sellers based upon artificial or inflated “comparable” sales in the same or similar neighborhoods. Suit was brought by the affected lender and a recovery obtained.
Example 3 – Breach of Lender’s Closing Instructions – Contract
In representing a community bank defending claims brought by a borrower who had contracted to have a modular home placed on his property on the coast, it was discovered that the closing attorney had disbursed all the lender’s funds before the home was delivered. Discovery showed that the lender client’s staff had sent a fax to the closing attorney stating essentially, “disburse remainder of funds upon delivery of the home.” Unfortunately, the lawyer’s office fell prey to the builder’s persistent requests for the entire amount of the loan proceeds and the result was a borrower indebted to pay the entire mortgage, but owning only a cleared lot with utilities set up and no home. After moving to put the borrower’s case into arbitration and settling those claims amongst all the other defendants, we brought suit for the lender against the attorney to reimburse our client for its losses. The primary claim was breach of the closing instructions in contract, which enabled suit to be filed and quickly settled without the need for expert testimony.
Example 4 – Nondisclosure – Fiduciary Duty
In December of this year, our firm obtained a jury verdict in an amount of over $1.7 million related to an undisclosed flip transaction involving commercial property in Richland County (Blythewood area). To prepare the case for trial required the taking of over 15 depositions by the parties, including four expert depositions. The trial lasted nine days and resulted in a jury verdict that included $694,128 in punitive damages against the attorney who failed to disclose to the Plaintiff who guaranteed a commercial loan in an amount of $4,073,000 that the property he was purchasing for $1,504,128 had been flipped by his own employee through a straw buyer for $810,000 just days before and both transactions were handled by the same law firm.
Mr. Few has also been selected to be a speaker and a workshop presenter at numerous Mortgage Fraud Conferences hosted by the American Conference Institute, most recently serving as the Chair of the 2013 ACI conference in San Francisco.
Simple Premise, Complicated Recovery:
Analyzing and investigating legal malpractice claims and related third-party fraud and breach of duty claims requires an understanding of the process of property transactions from the outset. This includes the way(s) agents or persons acting as agents show property, how brokers or sellers or others arrange flip sales and financing for the transactions to occur. The financing may come from a local bank, or a conduit source sometimes referred to a RMBS or CMBS.At its core, these transactions likely involve someone trying to make a cheap dollar at the expense of the ultimate purchaser, the lender, and even the attorney was may not have been diligent or attentive enough to see the “red flags” in the file.
Recovery against the fraudsters is often difficult as it requires the plaintiff to seek, find and seize (if possible) the assets of the criminal parties. On the other hand, recovery against the lawyers or their title insurance based upon their negligence in discovering defects in the title, or failure to disclose facts that the purchaser was entitled to know to make an informed decision involves contract and tort law theories and almost always involves the insurance carrier for the lawyer, the appraiser, or the assets of the title company.
Unfortunately for some victims, they may have a good case on liability but there is no available pot of money to compensate them for their losses, and the costs of pursuing the case is nowhere near justified. Mr. Few has handled these types of cases for over 14 years and has the experience to bring them to a successful resolution.
What To Do If You Think Your Attorney’s Negligence Caused You Damages:
Real estate transactions almost always involve documents, from the broker agreement, offer to purchase, contract, loan application and documents, note, mortgage, deed, and many other documents. These documents should all be gathered to be reviewed by an attorney if you think there was something missed in the handling of your closing by your attorney, or fraud on the part of another party that the attorney failed to discover.
Our firm has experience bringing claims as shown above, and while no past result can ever be a guarantee of future result, we will be glad to hear from you to arrange and coordinate a free consultation regarding your particular fact situation.
If you or someone you know thinks they have been damaged by the conduct of your closing attorney or any other parties related to a real estate transaction, contact our firm at 803-223-6942.