Opinion ID: 1929359
Heading Depth: 1
Heading Rank: 2

Heading: The Lackey Settlement

Text: In July 1986, Kenneth and Mary Lackey contracted to purchase a home for $137,500, agreeing to pay $6,875 down and to obtain a loan in the amount of $130,625. GMS sought a loan of $133,250 on behalf of the Lackeys, and created and filed with the prospective lender a fictitious contract showing a sale price of $170,000 and a proposed loan of $133,250. Based on the fraudulent contract and other fraudulent documents created by GMS, Travellers Mortgage Services, Inc. (Travellers) agreed to make the loan. [4] GMS sent the settlement package to respondent, allegedly including only the bona fide contract. Respondent conducted settlement of the case based on the sale price of $137,500 and a loan of $133,250, and forwarded the settlement documents to GMS. GMS apparently altered the settlement documents to show the higher contract price, and forwarded the package to the lender. At settlement, the Lackeys found they were $2,000 short of the cash required to close. Respondent apparently contacted GMS, and GMS agreed to loan the $2,000 to the Lackeys by deferring receipt of that much of the fee owed to GMS, and taking a promissory note for that amount. The settlement sheet prepared by respondent did not disclose this $2,000 loan, but rather showed cash from borrower of $13,057.33, of which the $2,000 was a part. Bar Counsel made two contentions concerning the Lackey settlement: 1) that respondent knew of and participated in the fraud being perpetrated by GMS, and failed to rectify that fraud in a manner required by DR 7-102; and, 2) that respondent was guilty of misrepresentation in certifying that the purchasers had provided $2,000 in cash, when in fact they had not. The evidence disclosed that settlement instructions sent to respondent by GMS bore the incorrect sale price of $170,000. Respondent explained that he thought this was an error, and he simply crossed through that figure and inserted the correct figure of $137,500 shown by the contract sent to him. It should be noted that the loan application forwarded to respondent similarly showed a sale price of $170,000. Bar Counsel also pointed to a speed memo found in respondent's file, which had been sent to respondent by Ellen Ballman, one of the principals of GMS, which read in part: Attached please find both contracts as per our discussion of 10-8-86. Respondent denies receiving two different contracts from GMS, and points to a note to his secretary that he claims to have written on the bottom of the Ballman memo which stated: Sue  call Ellen  ask what she is referring to  only 1 contract is here  are they [sic] amendments missing? Bar Counsel also finds suspicious the fact that two second pages, but only one first page, of a sales contract dealing with the transaction were found in respondent's files. Ms. Kushner, president of GMS, testified that respondent did not know of the fraudulent documents. Judge Ryan was not convinced by the evidence that Respondent was aware there were two separate sales contracts. Bar Counsel did not except to this finding, and we accept the finding of the hearing judge. Judge Ryan did find, however, that respondent misrepresented to the lender that the Lackeys had paid the cash required to complete the settlement on October 20, 1986 in the amount of $13,057.33, and respondent has excepted to that finding. Respondent argues that the Lackeys' obtaining the necessary $2,000 through a loan from GMS was no different than if they had obtained the money through the use of a credit card  that he would have no greater obligation to report the former loan than the latter. We are aware that lenders often protect themselves by requiring borrowers to certify at settlement that they have not undertaken additional obligations, but there is no evidence that respondent was asked to, or did, participate in the preparation and forwarding of any such documents. Had he done so, we would have had no hesitation in finding his participation to be a misrepresentation. We do not, however, view his preparation of the settlement sheet in this manner to constitute a misrepresentation, and we sustain respondent's exception to this finding.