Opinion ID: 1416042
Heading Depth: 1
Heading Rank: 4

Heading: Stegall Entities Transactions

Text: For many years, the Firm handled numerous real estate transactions for several entities owned and managed by Donald L. Stegall (Stegall). Respondent served as closing attorney in approximately fourteen transactions where Stegall entities were the sellers of mobile home and land packages. In each of these fourteen transactions, the HUD-1 statements and Firm balance sheets were prepared by the Firm's paralegal based on information from contracts of sale, information in the lender's loan closing instructions, and/or instructions from Stegall employees, usually Teresa Ashmore (Ashmore). In each of the transactions, both line 303 on the HUD-1 statement and the balance sheet would initially reflect amounts of money to be paid by the borrower at closing. Prior to closing, Ashmore would instruct the paralegal to make changes, primarily reducing the amount of cash from borrower to zero and making corresponding reductions in cash to seller on line 603 and, in other cases, directing other changes in disbursements to Stegall entities to cause the disbursements to balance. The changes made by the paralegal at Ashmore's directions were not reflected on the HUD-1 forms which were sent to the lenders. In each of these transactions, the HUD-1 statement contained a certification signed by respondent, as settlement agent, 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. None of the fourteen settlement statements contained the notation POC beside line 303 cash from borrower even though this amount was not received by the Firm. Accordingly, there was a variance in the information furnished to the lenders on the HUD-1 statements and the actual disbursements made out of the Firm's trust account in connections with these transactions. Accordingly, there was a variance in the information furnished to the lenders on the HUD-1 statements and the actual disbursements made out of the Firm's trust account in connection with these transactions. In six of the Stegall closings, addendums to the HUD-1 statements were prepared by the Firm's staff and executed by the parties. The effect of the addendums was to reduce to writing the changes which had been directed by Stegall employees, usually Ashmore, and made to the balance sheet by the paralegal. The addendums were not sent to the lenders. In one Stegall transaction, respondent closed loans for Borrowers Y and Z. Because the transaction was insured by the Federal Housing Administration (FHA), an FHA Addendum was required. The borrowers and seller signed certifications on the FHA Addendum prepared by respondent stating that there had not been any reimbursement for cash down payments or closing costs not disclosed to the lender. Respondent signed the certification on the FHA required addendum that the HUD was ... a true and accurate account of the funds that were (i) received or (ii) paid outside of closing, and the funds received have been or will be disbursed by [respondent] as part of the settlement of this transaction. The HUD-1 statement sent by respondent to the lender also contained the standard certification signed by respondent as the settlement agent. The HUD-1 statement sent to the lender showed $2,987.86 cash from borrower, however no cash from the borrowers was received by respondent or the Firm in connection with the transaction and the amount actually paid to the seller was reduced by the amount due from borrower. As a result, there was a variance in the information furnished the lender on the HUD-1 statement and the FHA required addendum and the actual disbursements made from the Firm's trust account and this, in turn, caused respondent's certifications to be incorrect. Similar transactions occurred in other FHA insured loans closed by respondent where a Stegall entity was the seller. Many of the transactions handled by the Firm for the Stegall entities were funded by Cendant Mortgage Corporation (Cendant). Jeffrey L. Greene (Greene) was Cendant's local representative and was the usual point of contact between the Firm and Cendant. Respondent was aware that Greene was also the principal point of contact between the Stegall entities and Cendant. Respondent knew Greene approved financing for borrowers of mobile home and land package sales made by Stegall entities. On or about June 4, 2001, respondent closed a transaction where Greene was the borrower. [2] The transaction was not financed by Cendant. The transaction was modified, not only to cause Greene to be forgiven of cash from borrower as shown on line 303 of the HUD-1 statement in the amount of $18,147.43, but also to cause Greene to leave the transaction with a check drawn on the Firm's trust account as a refund in the amount of $3,000. This change was directed by a Stegall representative to the Firm's paralegal. The paralegal made pen and ink notations on the balance sheet to reflect these changes. An addendum to the HUD-1 statement was prepared to reflect these changes and was presented by respondent to the parties for their signatures at closing. The HUD-1 statement sent to the lender does not mention a refund to Greene and does not reflect the $18,147.83 gift from a Stegall entity to Greene negating the cash from borrower information on line 303. The addendum was not furnished to the lender. In another transaction, [3] the HUD-1 statement sent to the lender shows cash from borrower in the amount of $2,038.12. There is no indication of a corresponding deposit in the Firm's trust account. The HUD-1 statement sent to the lender reflects a $43,750 deposit, but there is no record of a deposit in that amount to the Firm's trust account. In connection with this transaction, the Firm's trust account reveals the deposit of loan proceeds of $76,830.40 and deposit of a check from buyer (drawn on a BB & T account) in the amount of $37,500. Respondent knew the Stegall entities banked with BB & T. There is a disbursement from respondent's trust account to a Stegall entity in the exact amount of $37,500 and a refund to Stegall individually of $1,389. Amounts due to the Stegall entity are reduced on the balance sheet to reflect the foregoing and to cause the balance sheet and the corresponding disbursements from the trust account to be in balance. The HUD-1 statement sent to the lender was not amended to correspond to the actual disbursements made out of the Firm's trust account at the direction and/or approval of respondent. The HUD-1 statement contains no mention of either the $37,500 (either coming into or going out of the Firm's trust account) or Stegall, individually, receiving a refund or even being involved in the transaction. At some point, respondent became concerned whether borrowers were making the cash from borrower payments directly to the Stegall entities. According, respondent began requiring presentation of a cashier's check for the cash for borrowers at the closing. In approximately thirteen transactions, the cashier's checks were prepared by BB & T and delivered by Stegall employees to respondent's staff. Respondent is now informed and believes the Stegall entities furnished most, if not all, of the money to purchase the cashier's checks, but this was not known by respondent until it came to light during discovery in the Cendant case. See infra. Greene was indicted. He pled guilty in the United States District Court to one count of wire fraud and was sentenced to five years probation and restitution in connection with fraudulent dealings with Stegall and Ashmore to the detriment of Cendant and other lenders who purchased loans with inflated property values. In his plea agreement, Greene admitted deriving between $1,500,000 and $2,500,000 from his scheme with Stegall and Ashmore. With information available from criminal proceedings and related civil litigation after the closings, it now appears that the accommodations in the foregoing transactions by Stegall entities to Greene were in return for Greene inducing Cendant to make loans on inflated mobile home and/or land packages to borrowers who were buying from Stegall entities. Respondent was unaware of Stegall and Greene's arrangement concerning the Cendant loans. Stegall and Ashmore were also indicted in the United States District Court in connection with defrauding lenders in conspiracy with Greene. Stegall pled guilty to one count of wire fraud and was sentenced to eighteen months in prison. In his plea agreement, Stegall admitted deriving $3,075,000 from the real estate transactions related to his plea. One or more of the transactions mentioned in the information to which Stegall pled guilty were closed by the Firm. As a result of the foregoing, Cendant initiated litigation against the Firm. Cendant was paid $750,000 as settlement on behalf of the Firm. Five hundred and seventy five thousand dollars of this amount was paid by the Firm's insurance carrier and the remainder was paid by the Firm or respondent and his partner.