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Fiduciary Fraud

Lawyers gone wild

April 24, 2007

By PATRICK CROWLEY


photo of Patrick Crowley
Real estate lawyers in Georgia, New Hampshire and Brooklyn are facing charges they stole from clients and lenders.

In Atlanta, real estate closing attorney Mary Reagan was arrested at her home by the FBI and charged by federal prosecutors with conspiracy, bank fraud and wire fraud for her role in an alleged mortgage fraud scheme.

A 22-page federal indictment alleges that Reagan, 39, and two coconspirators -- Adriene Newby-Allen, 39, and James Howard Bailey III, 35 -- fraudulently obtained mortgage financing and home equity loans ranging from $2.5 million to $3.2 million from lenders.

"The loan values ... were inflated based upon allegedly false credit applications, including false representations regarding borrower income, employment and assets and inflated appraisal reports," the U.S. Attorney's office in Atlanta said in a statement.

Reagan, who operated a real estate law practice and closed several of the loans, is alleged to have disbursed "millions of dollars in loan proceeds" to the other defendants, prosecutors said.

Reagan allegedly used two settlement statements. One went to the lender "to facilitate her alleged fraud scheme," prosecutors said.

A second statement was given to the seller so the closing could proceed and the seller "did not blow the whistle," according to prosecutors.

"Mortgage fraud can be facilitated by closing attorneys who abuse their position of trust to knowingly process fraudulent closing documents," U.S. Attorney David Nahmias said in the statement.

In New Hampshire, lawyer Thomas Walsh was indicted and disbarred after allegedly using phony documents to dupe a client out of more than $53,000 from the sale of a condo, according to a statement from state Attorney General Kelly Ayotte.

Walsh allegedly gave fraudulent documents to a lender showing him to have power of attorney from a former client.

"These fraudulent mortgages caused liens to be recorded against the former client's real estate," Ayotte said in the statement.

Walsh is charged with theft by deception.

"Unlawful conduct by attorneys erodes the trust that citizens expect and need from the profession," Ayotte said.

In Brooklyn, state prosecutors have charged lawyers John Lewis, 54, and Angelyn Johnson, 48, with larceny, forgery, fraud and falsifying business records for their alleged participation in a complicated scheme involving a mortgage broker, a straw buyer and a client's home.

If convicted the lawyers face up to 15 years in prison, according to Queens District Attorney Richard Brown.

"It is particularly troublesome that the closing attorneys allegedly involved in this scheme are accused of having breached their fiduciary responsibilities for their own illegal profit," Brown said in a statement.

The lawyers and four others are charged with selling the house out from under a woman who was having money problems.

According to Brown's statement the lawyers and the other defendants used an elaborate ruse to convince the woman to allow them to put another name on her deed in order to qualify her for a mortgage.

The woman was assured "that her name would remain on the deed, that she would retain ownership of the property and that once her credit score improved the deed would revert back to her as being the property's sole owner," Brown said.

The woman signed over the deed, signed closing documents and then was told money generated from the sale of her house would be placed in escrow.

But Brown said the lawyers sold the house to a straw buyer who was in on the scheme then diverted most of the money -- more than $140,000 -- into accounts they and the others controlled. The woman finally realized she may have been victimized when she was mailed a deed that did not include her name, he said.

Prosecutors believe other sellers may also have been victimized by the alleged scheme.


Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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