Opinion ID: 2093603
Heading Depth: 1
Heading Rank: 7

Heading: The Hersh Matter

Text: Beginning in 1970, the respondent represented Mr. and Mrs. Hersh over a number of years in a variety of cases. In addition to the attorney-client relationship, a friendship developed. On November 23, 1977, the respondent represented Mr. and Mrs. Hersh in the purchase of a new home in Rockaway, New Jersey. The circumstances surrounding this closing have become the focus of controversy concerning the proper discipline to be visited upon this respondent. The Disciplinary Review Board concluded that the respondent had received approximately $2,000 for the payment of a tax liability to Rockaway municipality, and additional funds to pay a title insurance premium of $236.38. Respondent never paid the title insurance premium. In addition, the respondent made no attempt to make the necessary payment to the municipality for taxes until January 30, 1978, more than two months after the alleged receipt of funds at the closing. In January, two checks were drawn on his trust account, one for $1,530.72 and a second for $562.46. Both of these checks were returned for insufficient funds. On February 24, 1978, the check for $562.46 was renegotiated and cleared. The larger amount was not paid until March 2, 1978 at which time respondent obtained a certified check in the amount due, payable to Rockaway Borough. The respondent strongly challenges the conclusion that either of these occasions involves a misappropriation of funds on the grounds that his friendship with the Hershes had induced him to loan them over $20,000 to make the closing possible, and that he had never been adequately reimbursed. During the summer of 1977, the Hershes, who then owned a home in Lake Tranquility, became interested in purchasing the home in Rockaway, New Jersey. They had not as yet, however, sold their home in Lake Tranquility. Respondent allegedly cautioned the Hershes about committing themselves to purchasing the Rockaway home without having a firm deal on the sale of the Lake Tranquility property and maintains that the Hershes were willing to take the chances. It is also asserted that the seller of the Rockaway property agreed orally with Mr. Hersh to make the closing date on the new property contingent on the prior closing of the Lake Tranquility home, but that he would not put this in writing. The documents do not reflect such an agreement. The contract of sale for the Rockaway home stipulated a purchase price of $71,000 and a closing date of October 15, 1977. An initial $1,000 deposit was required toward the purchase price. An additional deposit of $6100 was to be paid on October 15, 1977 if closing had not taken place by such date. The Hershes paid the $1,000 but failed to close on October 15 or to make the $6100 payment. According to respondent, the Hershes were unable to come up with the cash for the additional deposit. Hoping to gain enough time to have the Lake Tranquility closing first, the respondent allegedly kept putting off the sellers of the Rockaway house until they made time of the essence. The sellers agreed to wait no longer than November 23, 1977. Although the mortgage was not ready for closing on that date, the parties appear to have consented to closing in escrow then, the sellers holding their proceed checks until the mortgage closed two days later. Thus, there is no evidence that when the Hershes came to the closing, they delivered any funds whatsoever to the respondent. Respondent testified that he obtained a loan in excess of $20,000 to make the closing possible. In round numbers, the transaction involved a $71,000 purchase price of the Rockaway home with a $1,000 deposit and first mortgage of $49,700. After adjustments, the cash due from purchaser at closing was $20,804. This balance was advanced by respondent. As noted, he closed the fee transaction on Wednesday, November 23, 1977 and the mortgage transaction on November 25, 1977. There was obviously a shortfall close to $21,000, presumably not including the tax liability, the insurance payment, or other costs. The Hershes admitted that Katz made up the shortfall. They testified that Katz kept reassuring them that he would find the solution to the matter. In retrospect, it would have been in Katz' best interest to refuse to proceed with the closing. The Lake Tranquility closing took place a week after the Rockaway closing. The net proceeds of the sale of the Lake Tranquility property were $15,534. Hersh testified that he gave Katz an additional $4,000 by check and $2,000 by cash, while Katz contends that he received only $5,000 by check and approximately $15,000 from the proceeds of the closing for a total of $20,000.67. This amount still falls short of the almost $23,000 needed properly to close the transaction. On this basis, the respondent adamantly contests the Disciplinary Review Board's finding that he received funds for payment of the $2,000 tax liability and the title insurance. In our view, we need not strain to analyze the respondent's tortured bookkeeping. Once the respondent had placed his attorney's imprimature upon the closing statements at the time of the Rockaway closing, the source of the funds was irrelevant. By submitting the loan closing and RESPA statements, he represented to the lending institution and to supervising government officials that there were sufficient funds to close the transaction. The statements covered the buyers' allowance of a credit of $1,807.49 for past due taxes, payment of one quarter's taxes and the fee policy premium of $236.38. The only value to respondent in persuading us that he had never received sufficient funds to make up the shortfall would be if the outcome of this aspect of his case depended upon a Wilson analysis that he had in fact misappropriated clients' funds. See In re Wilson, 81 N.J. 451 (1979). Because of the disposition we make of this matter, we do not find it necessary to predicate disciplinary action upon a Wilson violation. Suffice it to say, once the lawyer personally offered to advance the funds to his clients to facilitate the closing, he was dutybound thereafter to protect his clients' interest to the fullest extent. That would obviously require prompt payment of the municipal taxes that were a lien on the property and the acquisition of the fee title policy.