When going the extra mile pays off…uncovering a fraud
I recently learned the value of trusting my own investigative instincts. Last year I settled a case involving fiduciary misconduct. As part of the settlement, the defendant trustee and executrix agreed to assign to my client the estate's claim for malpractice against an attorney who wrongly advised the executrix of the estate about whether certain joint bank accounts belonged to the executrix personally or should have been transferred to the estate.
We brought the malpractice suit against the attorney, who did not have malpractice insurance. He did, however, own a lot of real estate. In an effort to protect his real estate holdings, he filed for bankruptcy protection. Shortly after his bankruptcy petition was filed, I attended a meeting of the attorney's creditors (a mandatory event under the Bankruptcy Code). At this meeting creditors or their attorneys get the opportunity to ask questions of the debtor. In reviewing the schedules the debtor filed with his petition, I noticed that he listed a family member as holding a mortgage on a multi-family property he owned in Rhode Island. I asked the debtor about this reference; he responded that his mother held the mortgage on the property, but that he hadn't made a payment to her on that mortgage in about 20 years and she had never sent him a notice that he was in default on that mortgage.
I was intrigued by this revelation, and decided that I would check to make sure the mortgage hadn't been paid off. So I took a trip to Lincoln, Rhode Island and reviewed deeds and mortgages on file there. It turned out to be a lucky day. I found a deed, recorded by the debtor attorney some two weeks after the filing of his bankruptcy petition, transferring the property to his mother for one dollar, a big no-no under the Bankruptcy Code (it is actually a bankruptcy crime that could be prosecuted by the U.S. Attorney's office). No sooner did I get back to my office than I e-mailed the deed to the bankruptcy trustee (who administers the bankruptcy case), who promptly requested that the court convert the case to a Chapter 7 liquidation. Now the debtor faces the prospect of his many properties being sold, an event which will hopefully result in my client getting substantial funds from the assigned malpractice claim.
Sometimes a bulldog finds treasure in the most unlikely of places!
