Some of the allegations in ARDC matters are hard for me to believe. This is one such case. A lawyer was accused of dishonesty and fraud in violation of Rule 8.4(c). Essentially, the lawyer prepared fake subordination agreements so that he could secure additional financing for a family real estate business. A subordination agreement takes a lender with priority and moves that lender behind another lender. Lenders are reluctant to subordinate their loans because they lose their first claim to the collateral and give another lender an advantage. The Hearing Board voted a five-month suspension.
The facts, as found by the Hearing Board, were as follows:
Before becoming a lawyer, Respondent worked as a realtor and loan originator. He saw a business opportunity in the need of some real estate purchasers for short term loans until they could obtain long term financing. Consequently, Respondent formed LOP Capital, LLC (LOP). LOP made short term loans at a relatively high interest rate, until the borrower could get a conventional loan at a lower rate. The arrangement presupposed that the buyer would quickly obtain other financing and repay the loan from LOP. (Tr. 17-20, 89-93).
Respondent’s father and grandfather co-owed LOP with Respondent. They provided the funds with which to begin LOP’s operations, by taking out loans from American Community
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Bank and Trust (American Community). The loans exceeded $1.5 million. Respondent’s father and grandfather each owned real estate, which they pledged to secure these loans. Respondent was to make the payments due to American Community, which included monthly payments of approximately $10,000. (Ans. at par. 1; Tr. 18-23).
LOP enjoyed some initial success. However, beginning in 2008, widespread economic recession caused sharp declines in the real estate market and property values. This created significant problems for LOP, in bringing in revenue and in maintaining its loans from American Community. (Ans. at par. 1; Tr. 20-25, 42-43, 92-93).
As time went on, American Community began to require that its loans be renewed at increasingly shorter intervals. In the renewal process, American Community would assess the adequacy of existing collateral and sometimes required additional collateral to renew a loan. In that context, in 2009 or 2010, LOP executed a deed in trust to American Community, pledging property LOP owned in Stephens County, Georgia as additional collateral for LOP’s obligations to American Community. (Ans. at par. 1; Tr. 24-25, 43-44).
LOP’s financial problems continued over time. It became increasingly difficult for Respondent to make the payments due to American Community. Respondent described his concern with avoiding foreclosure, particularly on property owned by his father or grandfather. Respondent also described his reluctance to inform his father of the situation. (Ans. at par. 1; Tr. 23-26, 32-34, 42-45; Adm. Exs. 3-6).
In an effort to obtain funds to pay American Community, Respondent tried to sell property and borrow additional funds. Respondent received some loans from individuals, but found only one commercial lender willing to lend funds to him. That lender, Prime Equity of Atlanta, Georgia, agreed to lend LOP $25,000, at eighteen percent interest, provided it received a first security interest in LOP’s property in Georgia. That was the same property LOP had pledged to American Community. (Ans. at par. 2; Tr. 25-28, 79-80, 112, 114).
Respondent assumed American Community would not agree to subordinate its interest to Prime Equity, and he did not ask anyone at American Community about this issue. Instead, on or about January 10, 2011, Respondent created a document entitled “Subordination Agreement.” According to this document, American Community agreed to subordinate its rights in the Georgia property to the interests of Prime Equity. Respondent signed the document, using the names of American Community’s vice president, Rick Francois, and its chief financial officer, Robert W. Getty. Respondent then signed Mark Tarinelli’s name and used Tarinelli’s notary stamp to purportedly notarize the other signatures. (Ans. at pars. 3, 4; Tr. 26-30; Adm. Ex. 1).
Respondent attempted to mimic the signatures of each of these individuals. He did not have authority from any of them to sign their names to this document and did not have authority to use Tarinelli’s notary stamp. Tarinelli was an attorney with whom Respondent was working, and Respondent had access to Tarinelli’s office. Respondent likewise did not have any authority from American Community to take action on its behalf in relation to the Georgia property. Respondent knew the purported Subordination Agreement was false and that his conduct was wrong. (Ans. at pars. 4, 5; Tr. 26-30, 59, 64-65, 77-78).
Respondent tendered the Subordination Agreement to Prime Equity and caused the document to be filed with the local court clerk. Respondent obtained the loan and used the proceeds to pay amounts past due to American Community. (Ans. at par. 6; Tr. 30-31, 36-37).
Respondent also created a document entitled “Cancellation of Subordination Agreement” (Cancellation), which purported to show that American Community cancelled the Subordination Agreement. On this document, and without authority, Respondent signed Francois’s name and purported to notarize that signature using Tarinelli’s name and notary stamp. Respondent knew the Cancellation was false. Respondent recorded the Cancellation, on or about June 1, 2012, by filing it with the local court clerk. (Ans. at pars. 7, 8, 9; Tr. 31, 53, 64-65, 77-78; Adm. Ex. 2)1.
At that time, Respondent had not fully paid the loans from Prime Equity or American Community. According to Respondent’s testimony, he intended to record the Cancellation as soon as the loan from Prime Equity was ready to go and the purpose of the Cancellation was to put things back in order, with American Community in a first position. Respondent did not notify anyone at American Community of the Subordination Agreement or Cancellation. Respondent knew if he did so the documents would be discovered as forgeries. (Tr. 53, 57, 113).
The Subordination Agreement and Cancellation came to light when American Community later foreclosed on the Georgia property. Francois first learned of those documents when they were sent to him in 2015. (Tr. 63-68). Francois sent the documents to Tarinelli, who likewise first saw them at that time, in August 2015. (Tr. 77, 85, 87).
Respondent engaged in serious misconduct, which entailed clear dishonesty. Respondent prepared and signed two documents, which he knew he had no authority to execute. Each document purportedly affected the right of a lender in collateral pledged to secure its loan. Respondent also falsely notarized the two documents, which ratcheted up the level of dishonesty present in this case.
Respondent’s misconduct was not a momentary lapse of judgment. Preparing, executing and purportedly notarizing these two documents involved a number of steps. Respondent also filed each document, filing the Cancellation a year and a half after the Subordination Agreement.
There was little mitigation. Respondent described some limited pro bono work. He did not present any character testimony.
Respondent suggested the Cancellation was mitigating, because it undid the Subordination Agreement. We disagree. Respondent’s theory suggests he does not understand the impact of his conduct. The Cancellation, if genuine, would have affected Prime Equity, whose loan had not been repaid when Respondent recorded the Cancellation. More fundamentally, the Cancellation constituted a second fraudulent document, which Respondent prepared knowing it was false and which provided a way to conceal the Subordination Agreement.
Respondent acknowledged his conduct was wrong and expressed remorse. However, to us, Respondent’s remorse appeared less related to his misconduct than to the overall situation involving the failure of LOP.
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