In an opinion filed on July 21, 2009, the Maryland Court of Appeals has disbarred two lawyers for their part in an equtiy stripping scheme the closing for which was conducted at the office Apple Title International, LLV in Silver Spring, MD. The following is taken from that opinion. It has been dedacted to remain concise and the full opinion can be found by clicking here.

Facts of Case

At the time of the closing Renard D. Johnson was the owner and president of Apple Title International, LLC (“Apple Title”), and Will Purcell was an independent contractor who conducted real estate settlements for Apple Title.

At the beginning of 2005, Calvin and Christine Barnes the owners of 2345 Leyton Court, Waldorf, MD and they were in financial difficulties and wanted to refinance the home. They contacted Michal Johnson (no relation) who was then affiliated with Montgomery Capital Corporation, to obtain the refinance which they hoped would also consolidating some of their other debts. Without fully explaining to Mr. & Mrs. Barnes that he had been unable to obtain their desired refinancing, Michal Johnson brokered a deal by which an individual named Shreco Thompson-Burnett agreed to purchase the Barneses’ home.

Michal Johnson generated a Sales Contract, and an Addendum. The original Sales Contract provided for a sale price of $360,000.00 and contains the purported signatures of Mr. & Mrs. Barnes as Sellers and Shreco Thompson-Burnett as Purchaser. The Sales Contract Addendum provided for a reduction of the sale price to $352,000.00 and also provided that the settlement date was “extended to 4/4/05.” The addendum contains the purported signatures of Mr. & Mrs. Barnes but was not signed by Ms. Thompson-Burnett. Neither Mr. nor Mrs. Barnes actually signed either the Sales Contract or the Sales Contract Addendum.

Michal Johnson arranged one hundred percent (100%) financing for the purchase with first and second mortgage loans of $281,600.00 and $70,400.00, respectively, issued by Home Loan Corporation, dba Expanded Mortgage Credit. Michal Johnson referred the sale to Apple Title to conduct settlement. The settlement was scheduled for April 5, 2005 at Apple Title’s office in Silver Spring. On April 5, 2005, Mr. & Mrs. Barnes and Ms. Thompson-Burnett, along with Michal Johnson, appeared at the office of Apple Title. The Barneses were greeted by Respondent Renard Johnson upon arrival, expecting to refinance their home, but shortly after their arrival, Michal Johnson explained to the Barneses that he was not able to arrange refinancing for them and he explained to them that he had arranged for Mr. & Mrs. Barnes to remain in their home at 2345 Leyton Court under a “lease/buy-back” arrangement withMs. Thompson-Burnett, a buyer he had located. Though the Barnes had never met or had knowledge of Ms. Thompson-Burnett, or contracted with her, a settlement then ensued. The settlement was conducted by Will Purcell as Apple Title’s designated “settlement agent,” with Respondent Renard Johnson also present at the settlement.

The settlement was irregular in many respects. The parties were advised that the Barneses would remain in their house and that Apple Title would hold an escrow from the Barneses’ sales proceeds equal to one year of rent payments. The plan was for the Barneses’ monthly rent to be calculated in an amount equal to the combined amount of Ms. Thompson-Burnett’s monthly first and second mortgage payments. There was no documentation of the proposed “lease/buy-back” arrangement between Mr. & Mrs. Barnes and Ms. Thompson-Burnett or of the parties’ related rent escrow, nor was such an escrow identified or itemized on Apple Title’s HUD-1 settlement form.

Respondent Johnson signed a deed, dated April 5, 2005, by which the 2345 Leyton Court property was conveyed from Mr. & Mrs. Barnes to Ms. Thompson-Burnett. By his signature, Respondent Johnson certified that the deed had been prepared by or under his supervision.

As of April 5, 2005, Cheryl Bruce, a non-lawyer, was employed as Apple Title’s office manager. In that position, she participated in preparing settlement documents and handled the disbursement of settlement funds related to the sale. Apple Title generated a document titled “Assignment of Funds,” dated inconsistently as “Today’s Date: April 5, 2005” and “Executed this 4th day of April, 2005.” That document, purportedly signed by both Calvin Barnes and Christine Barnes, authorized the assignment of “all proceeds or, in the alternative $18,000” of the sellers’ proceeds at settlement to Michal Johnson.

Such a payment was presumptively improper as an illegal kickback or finders fee in violation of the Real Estate Settlement Procedures Act (“RESPA”) and was not identified or itemized on Apple title’s HUD-1 settlement sheet. As settlement agent, Respondent Purcell signed a HUD-1 settlement statement by which he acknowledged the document to be “a true and accurate account of the funds which were received and have been or will be disbursed by the undersigned as part of the settlement of this transaction,” i.e., the sale of 2345 Leyton Court. The settlement statement signed by Respondent Purcell includes a line item, at line 603, of cash due to the sellers (Mr. & Mrs. Barnes) in the amount of $68,203.90, but the only cash disbursement actually made to Calvin and Christine Barnes was in the amount of $21,286.90 by wire transfer on April 6, 2005.

A separate wire transfer in the amount of $18,000.00 was made to an account held by Michal Johnson on April 6, 2005, pursuant to the Assignment of Funds (infra). After deducting the sum ($39,286.90) of the two aforementioned wire transfers, the balance of cash due to the sellers was $28,917.00. Apple Title never disbursed that amount to Mr. & Mrs. Barnes, nor did they prepare any escrow agreement by which they or anyone else would hold any portion of the sellers’ proceeds to be applied toward rent payments under the contemplated “lease/buy-back” arrangement. Mr. & Mrs. Barnes understood that the remaining balance of their sellers’ proceeds would be held in escrow by Apple Title and applied toward the rent payments they believed were to be made on a monthly basis in an amount equal to Ms. Thompson-Burnett’s mortgage payments.

Although Apple Title did not have a signed authorization or other directive from Calvin and Christine Barnes to disburse the remaining balance of their sellers’ proceeds, or any portion thereof, to Michal Johnson, Shreco Thompson-Burnett or any other third party or entity, on April 25, 2005, Apple Title issued a check drawn on its real estate escrow account in the amount of $27,168.00, made payable jointly to Shreco Thompson-Burnett and Michal Johnson. Cheryl Bruce issued that check at the request of Michal Johnson and forwarded it to him. Such funds were never used to pay Ms. Thompson-Burnett’s monthly mortgage payments.

At the time of settlement on April 5, 2005, Mr. & Mrs. Barnes, Ms. Thompson-Burnett and Michal Johnson had an undocumented agreement whereby Ms. Thompson-Burnett was not going to occupy the property but instead would be “renting” the property back to Mr. & Mrs. Barnes. In dereliction of his fiduciary responsibilities to the mortgage lender, Respondent Purcell processed settlement documents containing false information, including an Occupancy Affidavit executed by Ms. Thompson-Burnett as the borrower. In a Closing Certification for the sale, Respondent Purcell inaccurately certified that “the HUD-1 Settlement Statement which I have prepared is a true and accurate account of the funds which were (i) received, or (ii) paid outside closing, and the funds received have been or will be disbursed by the undersigned as part of the settlement of this transaction.”

As previously stated, the settlement statement did not report the payment of $18,000.00 to Michal Johnson, nor did it report the withholding of $28,917.00 from the sellers’ proceeds and the subsequent disbursement of $27,168.00 made by Cheryl Bruce upon Michal Johnson’s instruction, nor was the HUD-1 settlement statement ever amended to reflect any such change.

Respondent Johnson had supervisory authority over Respondent Purcell when Purcell acted as Apple Title’s agent and over Cheryl Bruce, a non-lawyer employed by Respondent Johnson at Apple Title. Both Respondent Purcell and Respondent Johnson were present and had knowledge of the “lease/buy-back” agreement of the parties, which was nothing more than an equity stripping transaction, and knew that it was improper and in violation of the mortgage lender’s closing instructions pursuant to which they were entrusted monies by the lender.

Their acts and conduct in the subject transaction including, but not limited to, Respondent Purcell’s certifying false HUD-1 settlement statements, not amending them, submitting knowingly false Affidavits of Occupancy, and Respondent Johnson’s knowing acquiescence in and oversight of the same, and his authorization of disbursements which were illegal, unauthorized and/or inconsistent with the HUD-1 settlement statements were dishonest, fraudulent and deceitful.

The Barneses were not provided with copies of any of the settlement documents by Apple Title, and the deed of transfer was not recorded until many months later, in January of 2006.

Sanctions - Headnote

ATTORNEY DISCIPLINE – SANCTIONS – DISBARMENT

Respondents violated the Maryland Rules of Professional Conduct (“MRPC”) based on their involvement with a fraudulent, equity-stripping lease/buyback arrangement for homeowners Calvin and Christine Barnes. Respondent Purcell conducted a closing as an independent contractor with Apple Title, where he utilized a false occupancy statement and signed a HUD-1 that misrepresented the manner in which settlement funds for Mr. and Mrs. Barnes would be distributed. Johnson, in his management capacity at Apple Title, violated his fiduciary duties to distribute the funds to which Mr. and Mrs. Barnes were entitled in a manner consistent with the forms that Apple Title prepared. These fraudulent acts, as well as Johnson’s acts as a supervisor of Purcell and Apple Title’s staff, constituted clear misappropriation of Mr. and Mrs. Barnes’s funds as well as misrepresentations about the nature of the agreement and the way that money would be distributed. We hold that Johnson violated MRPC 1.15(b), 8.4(a) and (c), 5.1(c), and 5.3(c) and Purcell violated MRPC 1.15(b) and 8.4(a) and (c). Disbarment is warranted because of the dishonest and fraudulent nature of these violations.