September 2009

Over the course of the past few years, lawyer regulators throughout the country saw a greater number of cases filed against practitioners in the real estate area than in any other substantive practice of law. In Illinois, for example, 16% of all formal disciplinary proceedings in 1993 were initiated against real estate practitioners. At that time, tort lawyers were the subject of more complaints than any other attorney group. Fifteen years later, however, 23% of the formal caseload alleged wrongdoing in the real estate field, more than any other substantive area of the law. The rise in formal proceedings is largely attributable to conduct that occurred prior to the mortgage crisis and the recession. At the national level, housing prices peaked in early 2005 and started to decline in 2006. Formal disciplinary charges against these practitioners began spiking after that. Much of the alleged lawyer misconduct during that heady era was attributable to either greed, cupidity, stupidity, or misplaced trust. 

Three Illinois examples from September 2009 provide some insights as to how real estate practitioners got in trouble.

The first example is one of misplaced trust.   The misconduct at issue occurred in 2007 and 2008, but the relationship that led to sanction began in 2004, during the height of the real estate boom.   Kevin Kent graduated from the Howard University School of Law and was licensed to practice in Illinois in 1996. Since admission, he served as a Cook County State’s Attorney, a member of the City of Chicago’s Law Department in the Torts Litigation Division, and was associated with a small personal injury firm. He became a sole practitioner in early 2003, concentrating in criminal defense and residential real estate. He is respected in the legal community and several judges and lawyers voiced a willingness to vouch for his excellent reputation for truthfulness and veracity. He has been an active member of the Cook County Bar Association and Chicago Bar Association. He has also been a member of the National Bar Association and National Black Prosecutors Association. He continues to be active in his college fraternity through the development of its clothing and food drives and youth mentoring programs.  In addition, he serves as legal advisor to his church on a pro bono basis and also as a member of the church’s buildings and grounds committee. Notwithstanding this fine background, Kent was disciplined by the Illinois Supreme Court for engaging in a conflict of interest in a real estate matter. Specifically, beginning in 2004, he had an ongoing referral relationship with a man named Davis, a self-employed real estate developer who located buyers to purchase distressed properties and then assisted the buyers in rehabbing the properties for resale at a profit. Once the developer located a buyer and had a real estate contract in place for the purchase and sale of a property, he referred his clients who were purchasing and/or selling property to Kent for his assistance in ordering and clearing title and for his legal representation at the closing on the property. Kent thus had a financial interest in the continuation of his relationship with the developer. One day in June 2007, just when exuberance in the local real estate market was beginning to recede, the developer advised Kent that he had located a buyer for certain real estate located on Chicago’s South Side. Davis asked Kent to order title and represent the seller in the transaction. At that time, the developer indicated that the seller wanted to expedite the deal. Later, the developer contacted Kent and indicated that the seller would be unable to attend closing. The developer told Kent that the seller had requested that Kent prepare a power of attorney on her behalf so that Kent could execute documents for her at the closing. At the developer’s direction, Kent prepared an Illinois Statutory Short Form Power of Attorney for Property on behalf of the seller, naming himself as Brooks’ attorney-in-fact, and gave it to Davis for Brooks to sign. Kent signed the document as a witness, certifying that he had witnessed the seller and a notary execute the power of attorney, even though he had not observed either execute the document. At no time did Kent discuss the sale or the closing with the seller or witness her sign the power of attorney, and the seller never executed the document. After the closing, the developer paid Kent a $500 attorney’s fee in cash outside of closing, and there was no reference to this money on the settlement statement. The developer walked away with $49,702.61 in sale proceeds. Unsurprisingly, the money never made its way into the seller’s purse. She later learned that the property had been sold out from under her. Kent was suspended for ninety days with the suspension effective on October 13, 2009. In re Kevin Tyronne Kent, M.R. 23292, 08 CH 121 (Ill. Sept. 22, 2009).

The second two examples deal with greed and criminality.

Mark J. Helfand, a graduate of the John Marshall Law School, was a long-time lawyer with an office in Chicago’s Loop. He was convicted of federal bank fraud and was sentenced to five months incarceration, five months home confinement, and he was ordered to pay $21,079 in restitution to a defrauded bank. The conviction related to his participation in a real property flipping scheme. Specifically, he would provide money for the purchase of run-down pieces of property and would then conduct the closing for the resale of those same properties in a short period of time for amounts two to three times their actual values. None of the buyers actually paid the required down payments, a fact known to Helfand who handled the cash purchases and the resale of the properties and was present at every closing. The only money actually received and distributed at the closings was from the lender, which had been induced as a result of inflated appraisals to issue loans in amounts in excess of the value of the properties. The loans went into default, resulting in substantial losses to the lender. Helfand was disbarred on consent. In re Mark Joel Helfand, M.R. 23119, 07 CH 131 (Ill. Sept. 22, 2009).

Lorie Keena Westerfield, a graduate of the Chicago Kent College of Law, was licensed in Illinois in 1995. She had a law office on Chicago’s South Side. She was convicted of federal wire fraud after she participated in a scheme to cause individuals experiencing financial problems to sell their homes as part of a leaseback arrangement. Specifically, she carried out this scheme by causing two people who had been experiencing financial difficulties and were facing home foreclosures, and whom she was representing in bankruptcy proceedings, to sell their homes to her as part of a leaseback arrangement. As part of this arrangement, she promised the individuals that they could lease back the homes from her and that they would be given the option to repurchase their homes at a future date. She then financed her purchases by obtaining loans for ninety-five percent of the respective purchase prices. In the loan applications submitted by Westerfield, she made false representations and omissions to the lender, the CIT Group, falsely representing that she had provided earnest money for the purchases to each of the sellers in an amount equal to five percent of the purchase prices because she knew that the lender would not finance more than ninety-five percent of the purchase prices.  She also inflated the sales prices of the homes and falsely represented her income. The two homes that were the subject of the superseding indictment were located at 8247 South Cregier Avenue in Chicago and at 16361 South Justine Street in Markham, Illinois. In reliance on her misrepresentations, CIT Group funded the loans necessary for her to purchase the homes in the total amount of $271,147. She subsequently defaulted on her payments in connection with each of the mortgages. Approximately three weeks after purchasing the South Cregier Avenue home, she filed a Chapter Seven bankruptcy petition on behalf of the individual who had owned the South Cregier Avenue home. In the bankruptcy petition, for the purpose of concealing the scheme, she falsely represented that the debtor had not transferred any property within the year prior to the filing of the bankruptcy petition, when she knew that the debtor, her client, had sold her home to Westerfield approximately three weeks prior to filing the bankruptcy petition. In connection with her purchase of the South Justine Street home, $125,573 in funds, the loan proceeds provided by the lender, were electronically transferred by wire from a CIT Group bank account in New York to a bank account in Illinois held in the name of Premier Title Company. She was sentenced to a five-year term of probation and was ordered to pay restitution of $116,147 to CIT Group. She was suspended on an interim basis on September 23, 2008. In September 2009, she was disbarred on consent, retroactive to the date of her interim suspension. In re Lorie Keena Westerfield, M.R. 23247, 08 CH 71 (Ill. Sept. 22, 2009). In addition to her criminal problems, the Chicago Tribune reported in January of 2006 that Westerfield helped oversee the closings for the three mortgages in which con-artists assumed the identity of a Second City  student performer whose wallet was snatched in a crowded bar. Westerfield's name was on those three loan closing packages as the title agent, notary and attorney for the purported sellers.

JAMES J. GROGAN, DACC, Illinois ARDC