ARDC Charges Lawyer with Wrongfully Obtaining A Loan From A Client

BEFORE THE HEARING BOARD:

The ARDC has accused a lawyer of wrongfully obtaining a loan from a client.

The lawyer, G. Ronald Kesinger, represented Myra and Paul Nickels in estate planning matters. Paul passed away in 2011 and the attorney opened a probate estate. The attorney was charged with misconduct for his decision to request a $26,000 loan from Myra Nickels during the representation.

The relevant factual allegations are as follows:

6. On September 18, 2012, while the probate case was pending, Myra met with Respondent at his office for the purpose of discussing matters related to the case. In their meeting, Respondent informed Myra that he had entered into a contract to purchase a house for his daughter and her family. Respondent told Myra that his bank had agreed to provide a mortgage loan for 80% of the purchase price and that he needed to provide the other 20%, which amounted to $26,000. Respondent told Myra that he did not have $26,000 and requested a personal loan from her in that amount. He told Myra that he would provide security for repayment of the loan by means of a second mortgage on the property and liens on a pickup truck and two large trailers that he owned. Myra agreed to make the loan and wrote and gave to Respondent a check in the amount of $26,000.
7. Respondent subsequently prepared and signed a promissory note that he dated September 18, 2012, and gave to Myra. The note provided that Respondent would repay $26,000 to Myra on September 18, 2013, one year hence, with interest at the rate of 8% per annum. The note also stated that Respondent would provide a mortgage and liens on vehicles as security for the loan as set forth above.”
The lawyer did not repay the loan on its due date. Rather, he repaid the loan, with interest, six weeks late, after family members contacted the ARDC.
The ARDC charged the lawyer with violations of Rule 1.7(a)(2) and Rule 1.8(a).  The ARDC alleged that Kesinger violated Rule 1.7(a)(2) by representing a client when there was a significant risk that the representation will be materially limited by a personal interest of the lawyer. It further alleged a violation of Rule 1.8(a) because the lawyer did not advise the client to obtain independent counsel. 
The ARDC also charged Kesinger with a violation of Rule 8.4(a) because he failed to disclose to his mortgage lender that he had borrowed $26,000 from a client so that he could make the down payment for a real estate purchase.
Comment: the third charge is troubling. It is common for someone seeking a mortgage to borrow the down payment from a family member. It is also common for the borrower to fail to disclose that loan to the mortgage lender. (There is no question that the failure to disclose the borrowed down payment violates federal law and can subject the borrower to liability). However, this practice is common and banks are known to look the other way. I suspect that many lawyers have purchased homes with funds borrowed from parents or other relatives and that few of those lawyers are aware that the ARDC considers the failure to disclose the loans to be “conduct involving dishonesty.” In my opinion, this charge is overkill.
Edward X. Clinton, Jr.

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