The Connecticut real estate bar has received a lot negative publicity over the last several years as a result of the actions of a few attorneys. These individuals have breached their fiduciary duties to their clients and the public trust by stealing money from their clients. In most cases this is done through residential real estate transactions, although there have been instances of theft and fraud involving estates and other legal representation. The number of instances of attorney thefts and the number of attorneys involved are both very small. This statistic is, however, not very relevant or comforting because the dollars can be very large, the financial effect on the clients is always devastating, and any number of thefts by attorneys is too many. Just one theft by an attorney can result in lost savings for a number of individuals.
As I mentioned, most attorney thefts occur in connection with real estate transactions. The attorney who decided to engage in this behavior generally accomplishes the theft by not paying off the seller’s mortgage and keeps the money for his own use. He (although almost all attorney thefts are done by men) eventually pays off the mortgage with the funds from another transaction. It is similar to a check kiting scheme.
If you have purchased a home, and you purchased an owner’s policy of title insurance, then you are protected. An owner’s policy protects you because the title insurance company will have to pay off any mortgages that were taken out before the date you purchased your home. It is a much bigger concern for the seller of a home, because the seller remains obligated for the unpaid mortgage. The fact that the seller’s attorney did not use the proceeds from the sale of the house to pay off the mortgage does not release the seller from responsibility for the mortgage. Refinances are also an area where this kind of fraud may happen because the attorney keeps the funds instead of paying off the old mortgage.
The good news, however, is that the vast majority of Connecticut attorneys are honest people and clients have nothing to be concerned about. In addition, attorneys, title insurance companies, and bar associations have all implemented new procedures to prevent this kind of fraud. First, the Statewide Grievance Committee, a part of the Connecticut Judicial Department, has implemented a new policy of random accounting of attorneys’ trust accounts. Under this policy all attorneys must submit to a comprehensive audit of their accounts or they will face disciplinary action and possible loss of their law license. The audits will reveal any improper actions by attorneys. Title insurance companies also conduct annual audits of attorneys. Second, title insurance companies doing business in Connecticut and local bar associations have adopted new requirements for attorneys to ensure that mortgages are paid off immediately as part of every closing. The new policies require that both attorneys be involved in the mortgage payoffs so that there is a system of checks and balances. No attorney will be able to hide the fact that he has not paid off his client’s mortgage.
As I mentioned before, even one instance of attorney fraud is unacceptable. As a result, attorneys in Connecticut are working hard to ensure that it is eliminated. The measures being taken will see that this happens.