Friday, July 20, 2012

Greed, Not Faith, Motivated Ethical Violations

The Illinois Review Board has recommended disbarment in a matter involving charges arising from the following facts:

The charges arise from Respondent's involvement with W2X, Inc. (W2X); RYM Technology Holdings (RYM); and In Jesus Christ's Name Investments, Inc. (IJCN). These three businesses targeted individuals who were facing foreclosure and advertised programs that would allow them to live in their homes for varying periods of time without paying their mortgage so they could get out of debt. The businesses used a sale-lease-buyback model in which they engaged straw buyers or "third party investors" (hereinafter "third-party investors") with good credit to obtain loans to purchase the distressed properties. In several instances, the third-party investors' loan applications contained false information about their income and assets. The third-party investors contributed no money toward the purchase of the properties and received compensation for their participation. The programs would then purportedly use the loan proceeds, closing cost credits, and the equity in the properties to pay the mortgage for a certain period of time. The homeowners/sellers typically had a grace period during which they did not have to make any housing payments. After the grace period ended, they were required to make rent payments for several years, which were sometimes described as "mortgage payments," and then had the option of regaining ownership of the property.

The homeowners/sellers in this matter testified that they did not understand that they were selling their homes. They believed that their property would be placed in trust for several years, their equity would be used to make mortgage payments during that time, and their mortgages would be paid in full by the end of their participation in the programs. Unfortunately, not only were the homeowners/sellers unaware that their homes were being sold, but W2X, RYM, and IJCN took the proceeds of the real estate transactions and failed to make the mortgage, property tax, and insurance payments for the properties in question. All of the properties in this matter were foreclosed upon or sold at tax sales, and several of the homeowners/sellers lost their homes. Respondent represented the homeowner/seller in each of the transactions at issue.

The Review Board affirmed findings of misconduct including overreaching, breach of fiduciary duties, and dishonesty and rejected the attorney's claim that her conduct was motivated by her religious faith:

Respondent took advantage of and caused significant financial harm to her clients at a time when they were financially vulnerable....Respondent's clients sought her out in an effort to prevent foreclosure and instead unknowingly surrendered title to their homes, with several losing their homes as a result of their participation in these fraudulent schemes. Many of Respondent's clients had to seek additional representation and file suit against Respondent and the other parties involved in an effort to save their homes or recoup some of their losses. As the Hearing Board notes, Respondent's misconduct also harmed the lenders in these transactions, who made hundreds of thousands of dollars in loans that were not repaid.

We also consider that Respondent violated her clients' trust for her own financial gain. Despite her protestations to the contrary, the evidence is clear that Respondent's actions were motivated by greed, not by a desire to help others. Respondent's self-serving motives are additional factors in aggravation.

(MIke Frisch)

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