Opinion ID: 1416042
Heading Depth: 1
Heading Rank: 3

Heading: Cromer Company Transactions

Text: Respondent and his partner served as closing attorneys in a number of real estate transactions where the Cromer Company was the seller of mobile home and land packages. The principal owner of the Cromer Company was A. Eugene Cromer (Cromer). Melissa Caldwell (Caldwell) was an employee of the Cromer Company and was often the principal point of contact between the Cromer Company and the Firm. On one occasion, respondent closed loans for the Cromer Company where the HUD-1 Settlement Statement reflected that certain sums of money on line 303 cash from borrower had been paid by borrowers at closing when the balance sheet (in-house schedule of incoming funds and disbursements) and the Firm's class report (trust account ledger) showed no money had been received into the Firm's trust account. On this occasion, no money was received by the Firm from borrowers. Respondent represents that Cromer or a representative of his company advised the Firm staff, probably to the paralegal, that this amount had been paid by borrowers directly to the Cromer Company. Thereafter, the paralegal made pen and ink changes to the balance sheet to reflect that no cash from borrowers was received at closing and reduced the cash to seller on line 603 of the HUD-1 statement by the amount of the cash from borrower shown on line 303. [1] However, the HUD-1 form submitted to the lenders were not amended and continued to show an amount of cash from borrower on line 303 and no notation of POC (a standard abbreviation for paid outside of closing). The HUD-1 form contained the standard statement signed by respondent to the effect the HUD-1 Settlement Statement which I have prepared is a true and accurate account of this transaction. I have caused the funds to be disbursed in accordance with this statement. On another occasion, respondent served as the closing attorney for a transaction between the Cromer Company as seller and Ms. Z as buyer. On line 303, the HUD-1 statement showed cash from borrower to be $5,211.50. However, on instructions from the seller, pen and ink changes were made to the balance sheet, deleting the amount of cash from borrower on line 303 and reducing cash to seller on line 603 by a like amount. No corresponding change was made to the HUD-1 form which was sent to the lender and no POC notation was made on line 303. The Firm's class report did not show cash from borrower deposited into the Firm's trust account and, instead, showed the amount of the cash to seller reduced by the amount the HUD-1 form showed as cash to borrower. This caused a variance in the information given the lender in the HUD-1 form and the actual disbursements from the Firm's trust account. The HUD-1 form contained the standard attorney certification as set forth above. On two other occasions, respondent closed transactions wherein the Firm's class report showed the line 303 cash from borrower was paid at closing by a check drawn on the Cromer Company account rather than by cash or a check from the borrowers. This fact was not disclosed to the lender. Respondent represents that a representative of the Cromer Company told a Firm employee that the cash from borrowers in these two transactions had been paid directly by borrowers to the Cromer Company. Respondent is now informed and believes that the representations from the Cromer Company that the amount due from borrower on these last three occasions had been paid directly by borrowers to the Cromer Company were false, that there was (at least in most instances) no money paid from the borrowers as represented on line 303 of the HUD-1 form and that Cromer's misrepresentations were in furtherance of his scheme to sell mobile home and land packages to borrowers without the borrowers having to contribute any money to the transactions. As a result, it now appears that the representations made by respondent concerning the information on lines 303 and 603 of the HUD-1 statements were incorrect. The inaccurate report had the tendency to cause lenders to believe that borrowers had invested money in the transactions when, in fact, the borrowers had not, and caused the price of the package to be inflated by the amounts shown on line 303 of the HUD-1 form. Cromer and Caldwell were indicted in the United States District Court in connection with one or more transactions closed by the Firm where the Cromer Company was the seller. An allegation in Cromer's indictment states Cromer made false statements concerning down payments (information on line 202 of HUD-1 forms) and cash from borrowers (information on line 303 of HUD-1 forms). Cromer pled guilty to one count of mail and wire fraud in connection with these transactions and was sentenced to eighteen months in prison. In his plea agreement, Cromer admitted he had derived between $5,000,000 and $10,000,000 in benefits from his scheme. ODC does not contend that either respondent or his partner were aware of Cromer and Caldwell's criminal activities or of the amount of the money involved. Instead, ODC contends respondent's failure to either amend line 303 and line 603 to reflect no cash from borrower received by the Firm or to place the notation POC by the line 303 data made it possible for Cromer to engage in the criminal activity stated in the Cromer indictment. In approximately twelve transactions in which the Cromer Company was the seller and the Firm served as closing agent, borrowers made claims or, in some cases, initiated litigation, against the Firm. The Firm and/or respondent and his partner and their insurance carrier paid $2,500 per case to settle the claims.