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Opinions – Maryland Court of Appeals: 3/28/11

Professional Responsibility

Disbarment

BOTTOM LINE: Disbarment was warranted for attorney who deposited his clients’ fee payments in a personal account and then abandoned his clients without refunding the fees.

CASE: Attorney Grievance Commission of Maryland v. Lara, Misc. Docket AG No. 14 Sept. Term, 2010 (filed March 4, 2011) (Judges Bell, Harrell, BATTAGLIA, Greene, Murphy, Adkins & Barbera). RecordFax No. 11-0304-21, 14 pages.

FACTS: Joel Lara was admitted to the Maryland Bar on Dec. 13, 1995. The Court of Appeals, on April 6, 2009, prohibited Lara from the further practice of law in Maryland for being in default in his payment of the annual assessment issued by the Client Protection Fund.

In the spring of 2008, Lara undertook representation of Richard Frye in bankruptcy proceedings. Frye paid Lara $500, which he understood to be a partial fee payment. Lara did not deposit Frye’s payment into a trust account maintained pursuant to Title 16, Chapter 600 of the Maryland Rules. Nor did he obtain Frye’s informed consent, confirmed in writing, to deposit his advance fee payment into a bank account other than a client trust account.

When Frye next tried to contact Lara after their initial meeting, he discovered Lara had moved out of his office in Germantown and that Lara’s office phone number was disconnected. Lara never contacted Frye to provide a new phone number or address. Lara did not file the bankruptcy case for which he had been engaged by Frye, yet he retained Frye’s entire fee.

Similarly, Nikki Johnson met with Lara in May 2008 and paid him $600 as a deposit to handle her bankruptcy filing. Lara did not deposit Johnson’s fee into a trust account. Again, he did not obtain the client’s consent to deposit the fee into a non-trust account. Starting in July 2008, Johnson was no longer able to reach Lara on his law office phone number, which had been disconnected. She soon learned that he had vacated his office in Germantown. Lara never provided Johnson with new contact information, and he failed to file her bankruptcy case. Lara kept Johnson’s entire fee even though he had not performed the legal service for which such payment was made.

Johnson and Frye each complained to the Attorney Grievance Commission within a few weeks of one another in June 2009. The office of Bar Counsel requested a written response from Lara as to each complaint by mailing correspondence to Lara’s home address, located in Germantown. Lara failed to respond to Bar Counsel’s letters seeking a written response in each matter.

Thereafter, William Ramsey, an investigator for the Commission, was assigned to contact Lara. After Lara failed to respond to Ramsey’s phone messages, Ramsey made an unannounced visit to Lara’s home. Lara acknowledged his prior receipt of the Johnson and Frye complaints with Bar Counsel’s correspondence requesting a response. He offered no explanation for failing to respond.

On Dec. 29, 2009, the Commission filed a petition for disciplinary or remedial action against Lara, charging numerous violations of the Maryland Rules of Professional Conduct (MRPC), including Rule 1.3 (Diligence), Rules 1.4(a) and (b) (Communication), Rules 1.15(a), (c), and (d) (Safekeeping Property), Rule 1.16(d) (Declining or Terminating Representation), Rule 8.1(b) (Bar Admission and Disciplinary Matters), and Rules 8.4(a) and (d) (Misconduct).

On April 19, 2010, Lara was personally served with process issued by the circuit court. Lara failed to file an answer. Thereafter, an order of default was entered.

A hearing was held on the petition, at which Lara neither attended nor participated, although he had received notice. Lara also failed to appear for oral arguments before the Court of Appeals.

The hearing judge determined that Lara violated Rules as charged. Accordingly, Lara was disbarred.

LAW: Neither Bar Counsel nor Lara filed any exceptions to the hearing judge’s findings of fact or conclusions of law. As a result, the hearing judge’s findings of fact were accepted as established for the purpose of determining the proper sanction. Rule 16-759(b)(2)(A).

In Attorney Grievance v. Tinsky, 377 Md. 646 (2003), a client had paid Tinsky $925.00 to file a Chapter 7 bankruptcy petition. Tinsky failed to file the petition until three years had passed and failed to attach the required schedules and statement of financial affairs. Thereafter, the Bankruptcy Court dismissed the petition, but Tinsky never refunded the client’s fee. Id. at 650. Tinsky, moreover, failed to respond to Bar Counsel’s petition for disciplinary or remedial action, such that an order of default was entered against him, as well as failed to attend the evidentiary hearing in the circuit court, and also did not appear for oral argument before the Court of Appeals.

The Court of Appeals concluded that disbarment was necessary for the protection of the public because of Tinsky’s “lack of diligence, his lack of preparation, his failure to communicate with his clients, his charging of unreasonable fees, his failure to account for and return monies, his misrepresentations, and his failure to comply with Bar Counsel’s requests.” Id. at 655. The Court emphasized that disbarment was appropriate particularly because Tinsky’s conduct had tarnished the legal profession, in violation of Rule 8.4(d). Id. at 655-56.

Similarly, in Attorney Grievance v. Logan, 390 Md. 313 (2005), after a series of contentious email exchanges, Logan advised his client that “he was terminating their attorney-client relationship,” declined any further communication, and failed to return original documents to the client, in violation of Rules 1.3, 1.4(a), and 8.4(a) and (d). Id. at 318. In addition, Logan failed to respond to letters from Bar Counsel, did not answer the petition for disciplinary or remedial action, and did not appear at the hearing in the circuit court. He also did not file any pleadings or appear at oral argument before the Court.

The Court of Appeals held that disbarment was warranted. Id. at 320. See also Attorney Grievance v. Faber, 373 Md. 173 (2003).

Lara agreed to represent Mr. Frye and Ms. Johnson in filing their individual bankruptcy petitions, deposited their advance fee payments in a personal account shortly before abandoning his law office, as well as all client communication, and failed to refund the fees despite performing no legal work. Moreover, Lara ignored all requests for information by Bar Counsel.

Under the circumstances, Lara’s disbarment was warranted for the protection of the public.

COMMENTARY: The hearing judge’s conclusions of law are reviewed de novo. Rule 16-579(b)(1); Attorney Grievance v. Jarosinski, 411 Md. 432, 448-49 (2009).

The hearing judge concluded that there was clear and convincing evidence that Lara violated Rules 1.3 and 1.4(a) and (b) by failing to carry out the representation for which he was engaged by Mr. Frye and Ms. Johnson and also by failing to keep the clients reasonably informed.

In addition, neither fee payment had been earned at the time Lara received it, and, in fact, Lara did not render any service to either client to earn the fees subsequently. Because the advance payments from Frye and Johnson were not earned, they remained client funds to be held in trust. Attorney Grievance Commission v. Ugwuonye, 405 Md. 351, 370-71 (2008). Thus, Lara’s failure to deposit and maintain the unearned advance fee payments of Frye and Johnson in a trust account violated Rule 1.15(a) and (c).

When Lara vacated his law office and abandoned his representation of Frye and Johnson, there was a de facto termination of each representation. Lara failed to communicate such termination to either client, and he did not protect the clients’ interests by giving them reasonable notice or allowing time for employment of other counsel. Such conduct violated Rule 1.16(d).

Lara further violated Rule 1.16(d), as well as Rule 1.15(d), by failing to refund advance payments of fees that had not been earned to Frye and Johnson.

Finally, Lara’s abandonment of two clients without any form of notification constituted conduct prejudicial to the administration of justice, in violation of Rule 8.4(d). See Tinsky, 377 Md. at 651-52. By failing to respond to Bar Counsel’s lawful demands for information concerning the complaints filed by Frye and Johnson, Lara violated Rule 8.1(b). Attorney Grievance Commission v. Jarosinski, 411 Md. 432, 446 (2009).

Lara’s multiple violations of the Rules also established misconduct in violation of Rule 8.4(a), which makes it professional misconduct for a lawyer to “violate or attempt to violate” the Rules of Professional Conduct. Attorney Grievance Commission v. Foltz, 411 Md. 359, 411 (2009).

Based upon its own de novo review of the record, the Court agreed with each of the hearing judge’s conclusions of law.

Real Property

Foreclosure

BOTTOM LINE: Where real property was held by a married couple and another person as tenants in common, trustees were authorized to foreclose on the married couple’s undivided one-half interest in the property, which was pledged as security under a deed of trust.

CASE: Fagnani v. Fisher, No. 40, Sept. Term, 2010 (filed March 18, 2011) (Judges Bell, Battaglia, GREENE, Murphy, Adkins, Barbera & Eldridge (retired, specially assigned)). RecordFax No. 11-0318-20, 25 pages.

FACTS: From 1982 until her death in 1985, Pauline Fagnani jointly owned a house in Silver Spring with her sons, Ricardo and Ronald. Pauline left her interest in the Property to her sons, and, following Pauline’s death, the sons owned the property as tenants in common, each holding an undivided one-half interest in the property.

On Feb.13, 2003, the brothers re-titled the property to convert Ricardo’s one-half interest to a tenancy by the entirety with his wife, Carole. On Nov. 10, 2003, Carole borrowed $85,000 from American Residential Mortgage in a loan secured by a deed of trust for the property. Only Carole entered into the note, which Ricardo signed for her as “her attorney in fact.” The note incorporated the default provisions set forth in the deed of trust.

Carole subsequently defaulted on the loan, and Ronald appointed trustees to sell Carole’s and Ricardo’s interest in the property. The trustees advertised the property for sale as an undivided one-half interest, and sold the property on June 2, 2008 at a public sale.

Following the circuit court’s proposed ratification of the foreclosure sale, Carole and Ricardo filed exceptions challenging the trustees’ ability to foreclose on only their one-half interest in the property. The court overruled the exceptions, and Carole and Ricardo filed a motion to alter or amend or for a new trial, which the circuit court denied.

Carole and Ricardo appealed to the Court of Special Appeals, which affirmed the judgment of the circuit court ratifying the foreclosure sale and holding that the foreclosure of an undivided one-half interest in the property was proper.

Carole and Ricardo appealed to the Court of Appeals, which affirmed.

LAW: A tenancy in common is a type of concurrent estate in which multiple parties have interest in a single property. A tenant in common holds an undivided share in the whole estate, and an equal right to possess, use, and enjoy the property. Downing v. Downing, 326 Md. 468, 474 (1992).

Here, Carole and Ricardo held an undivided one-half interest in the property as tenants by the entirety and that Ronald held an undivided one-half interest in the same property as a tenant in common with the couple. It was undisputed that Carole defaulted on the note secured by a deed of trust on the property and that Ronald acquired the note from the original lender. Carole and Ricardo contended that the trustees had no authority under the deed of trust to sell less than 100% of the property and that the foreclosure sale was therefore conducted improperly.

One who borrows money from a lender/creditor or mortgagee is designated as a borrower/debtor or mortgagor. In order to ensure repayment, a lender or creditor may require the debtor to convey property to the creditor to be held as collateral to secure the debt. The conveyance ensures that the creditor will either be repaid the loan or retain ownership of the collateral. See Simard v. White, 383 Md. 257, 270-71 (2004). Where the legal relationship exists between only the debtor and the lender, it is evidenced by a mortgage document; however, where the debtor conveys the property to a third party trustee rather than the lender, it is evidenced by a deed of trust. Simard, 383 Md. at 281. A deed of trust is a security interest device that transfers the legal title from a property owner to one or more trustees to be held for the benefit of a beneficiary. Springhill Lake Investors, Ltd. P’ship v. Prince George’s County, 114 Md. App. 420, 428, cert denied, 346 Md. 240 (1997).

The conveyance transfers the estate of the debtor to the trustee, giving the trustee legal title to the property. The debtor retains an “equity of redemption” or the right to to reassert complete ownership of the land, upon payment of debt and any other charges rightly assessed under the terms of the lien instrument. Simard, 383 Md. at 272 n. 12. The conveyance can then be defeated on the performance of a condition subsequent (e.g., the payment of the money). Id. at 271. In contrast, a mortgage conveys the whole legal estate to the mortgagee, subject, generally to the condition subsequent that, upon due payment of the mortgage debt and a performance of all the covenants by the mortgagor, the mortgage deed is avoided.

Not unlike a mortgage, the deed of trust may contain a power of sale. In a deed of trust, the power of sale enables the trustee to sell the property upon the debtor’s default, in order to reimburse the lender for the debt. Simard, 383 Md. at 281. Pursuant to the power of sale provision, a trustee may institute a foreclosure action, in which the trustee may “order and direct that the mortgaged premises, or so much thereof as may be necessary to discharge the money due and costs, be sold for ready money.” Id. at 276-77.

A foreclosure sale is governed by Md. Code (1974, 1996 Repl. Vol. 1999 Supp.), §7-105 of the Real Property Article, and the Maryland Rules. Maryland Rule 14-305(d) provides that if a party perceives an irregularity in the foreclosure sale, it may file exceptions to the sale of the property. However, the ratification of a foreclosure sale is presumed to be valid. Webster v. Archer, 176 Md. 245, 253 (1939). In other words, there is a presumption that the sale was fairly made, and the burden is upon one attacking the sale to prove the contrary. Id. The party excepting to the sale bears the burden of showing that the sale was invalid, and must show that any claimed errors caused prejudice. Ten Hills Co. v. Ten Hills Corp., 176 Md. 444, 449 (1939).

When a foreclosure sale is held pursuant to the terms in a deed of trust, trustees must adhere to certain standards in carrying out their duties. Trustees are under a duty to exercise the same degree of prudence, care, diligence and judgment that a man of ordinary business judgment and experience would exercise in selling his own property. Webster, 176 Md. at 254. In performing their obligations, trustees have discretion to outline the manner and terms of the sale, provided their actions are consistent with the deed of trust and the goal of securing the best obtainable price.” Simard, 383 Md. at 312 (2004).

Unless the precise method of sale is prescribed by contract or decree, some discretion is necessarily granted to the trustee, attorney or assignee, making the sale, as to the manner in which the property will be offered. That discretion will naturally be affected by the character and location of the property and other circumstances peculiar to the case, so that it is impossible to lay down a hard and fast rule. Webster, 176 Md. at 254-55. Finally, trustees are obligated to sell no more of the property than is necessary to pay the mortgage debt, accrued interest, and costs of foreclosure. Id. at 254.

As a matter of law, a trustee may foreclose on an undivided one half interest, rather than the entire property. See id. at 254-55. Here, it was undisputed that Carole defaulted on the promissory note. After her default, Ronald acquired the note, by assignment from the original lender, ultimately obtaining the lender’s rights and interest in the note. Accordingly, as a matter of law, when Ronald acquired the note, he also obtained the status of mortgagee or secured party with respect to the lien on the subject property. Ronald also became the beneficiary of the deed of trust, which incorporated the note. See Springhill Lake Investors, 114 Md. App. at 428. As note holder and beneficiary of the deed of trust, Ronald had the authority to act consistent with the terms of the note and the deed of trust, which secured the note. The note incorporated the power of sale provision in the deed of trust, which allowed the appointed trustees to foreclose on the property in the event of a default by the debtor.

Pursuant to the power of sale contained in the deed of trust, the trustees instituted foreclosure proceedings to sell the property. The deed of trust did not specify a precise method of sale; rather, the trustees, as a matter of law, had the discretion to determine the manner and terms of the sale. Accordingly, it was within the sound discretion of the trustees to evaluate the circumstances peculiar to this case, including the fact that the debt was apparently owed by only one of the cotenants, the amount of the debt, and the nature of the property as a co-tenancy. The trustees decided to sell only as much of the property as was necessary to satisfy the debt, and accordingly advertised only the one-half interest of Carole and Ricardo for sale.

When the debt is repaid through a foreclosure sale, the debt instrument becomes void between the original parties and legal title is then transferred to the purchaser. Manor Coal Company v. Beckman, 151 Md. 102, 115 (1926). Therefore, when Ronald purchased the property secured by the deed of trust pursuant to the sale, he acquired clear title to the property mortgaged to secure the debt. Simard v. White, 16 383 Md. 257, 272 n.12 (2004). Prior to the sale, the trustees held legal title to the entirety of the property, subject to the concurrent interests of Carole, Ricardo, and Ronald. The trustees’ acquisition did not affect the co-tenancy ownership of the property. As a matter of law, after the sale, legal title held by the trustees was conveyed to Ronald, as the purchaser at the foreclosure sale, and the deed of trust was voided. At that point, Ronald received legal title to the entire property subject to his own interest.

Thus, because Ronald was the purchaser, and his interest was the only remaining interest after the sale, Ronald was left with absolute ownership of the property. Under the circumstances, the trustees did not abuse their discretion in conducting the sale, and the sale was therefore properly ratified.

Accordingly, the judgment of the Court of Special Appeals was affirmed.

COMMENTARY: Although the trustees acted within their discretion in foreclosing on only Carole and Ricardo’s one-half interest in the property, it was also necessary to review the procedural aspects of the sale. An exceptant may challenge the procedure used in a foreclosure sale pursuant to Md. Rule 14-305. A court shall ratify the sale if the court is satisfied that the sale was “fairly and properly made.” Rule 14-305(e). Examples of recognized procedural irregularities include challenges to the advertisement and the price obtained for the property. See Greenbriar v. Brooks, 387 Md. 683, 741 (2005).

The purpose of advertising the foreclosure sale is to apprise the mortgagor of the proposed sale and to give the public such notice thereof that persons who might be interested in purchasing the property as that to be sold might know of the sale and have an opportunity of bidding on the property. Ten Hills, 176 Md. at 449. The standard for evaluating the substance of the advertisement is whether a person of ordinary intelligence may understand the identity of the property to be sold interpreted in the light of practical common sense. Ten Hills, 176 Md. at 450-51.

Here, the advertisement was sufficient because it adequately described the premises. The advertisement clearly identified what property and what interest was being sold, and put the public on notice of the sale. The term “undivided one half interest” was quite specific and put any prospective buyer on notice that the sale was for an interest in a concurrently owned estate. Because they did not prove that the advertisement was prejudicial to the sale of the property, Carole and Ricardo failed to meet their burden of overcoming the presumption of validity.

There was no indication or evidence that the trustees failed to act with ordinary business judgment or proper prudence, care and diligence. They acted in accordance with the terms of the note and deed of trust as well as the statutory requirements.

PRACTICE TIPS: In the context of challenging a foreclosure sale, inadequacy of price alone, unless it indicates fraud, unfairness or some misconduct or mistake for which the purchaser should be held responsible, ordinarily is not a sufficient ground to set aside a sale. However, if inadequacy of price be coupled with any irregular or faulty advertisement or conduct in the making or manner of sale, such as indicates that the property has not been advertised or offered for sale, or sold, under conditions and circumstances that would most likely produce the largest revenue, the court will set it aside and order a resale. The test is whether the property was sold under such conditions and terms as to advertisement and otherwise, as a prudent and careful man would employ, seeking to obtain the best price for his own property. Pizza v. Walter, 345 Md. 664, 677-78 (1997).