When Lawyers Steal the Escrow
June 5, 2005 | REPUBLISHED BY LIT: MAR 18, 2021
INEVITABLY, when people hired Jay W. Rosen as their real estate lawyer, things went wrong.
A dispute over the home’s title or its certificate of occupancy would stymie the deal, making it impossible for Mr. Rosen to release his clients’ money from an escrow account he controlled. An ancient property-line dispute would rise from the dead. Checks would get delayed. Cash transfers wouldn’t connect.
It was as if money just didn’t want to leave Mr. Rosen’s hands, clients said.
“To say I was irate was an understatement,” said Gregg Thaler, who hired Mr. Rosen last summer when his family was selling their home and moving from Long Island to Las Vegas. “I was throwing a fit.”
Soon, the Thalers began to suspect what criminal charges and a guilty plea would later confirm. Mr. Rosen, a 62-year-old lawyer from Garden City, N.Y., had been stealing from his clients, looting their escrow accounts and down payments.
In all, prosecutors say, he stole at least $3.6 million from about three dozen people in Long Island.
His clients joined the growing ranks of the newly bilked. More and more people in New York City and its suburbs are losing thousands of dollars to their real estate lawyers, according to the state Lawyers’ Fund for Client Protection, which tracks thefts by lawyers and reimburses their clients.
To hear these stories underscores the fragility of real estate’s reliance on trust, handshake compacts and reputation-based referrals, and how quickly it can be corrupted.
With real estate business surging and down-payment amounts rising with home prices, the temptation for a lawyer to filch money from a bulging escrow account and later repay it with other clients’ money has never been greater, said lawyers who monitor the thefts.
The thefts are a particular problem in the New York metropolitan area, where 10 percent down payments are standard and lawyers control the escrow money. In many upstate towns, buyers put down only a few hundred dollars to secure a home and brokers hold the escrow.
Timothy J. O’Sullivan, executive director of the Lawyers’ Fund, said claims of real estate theft have surged over the last five years and now surpass claims of theft from trusts, estates and lawsuit settlements. One hundred people reported real estate thefts in 2004, compared with 44 in 1999, according to an annual report by the Lawyers’ Fund.
In 1999, clients of crooked real estate lawyers received $555,345 in compensation from the Lawyers’ Fund, its data show. Last year’s total was $3.651 million. The large theft by Mr. Rosen was not the main reason for the increase in compensation, because the compensation for many of his victims has not yet been paid.
There are no hard numbers recording how many lawyers are arrested or disbarred each year after looting escrow accounts on home sales. Some lawyers take the money to pay off debts. Some spend lavishly on extramarital affairs or to finance drug addictions. Others steal from one client to pay others, again and again, getting buried in a self-created pyramid scheme.
For a Chinatown lawyer named Chak Yin Lee, it was a gambling problem. Mr. Lee pleaded guilty last month to one count of grand larceny after being accused of stealing more than $800,000 from at least 10 clients who were buying and selling homes and investment property.
According to a statement from Manhattan prosecutors and lawyers involved in the case, Mr. Lee would transfer down payments from escrow accounts into his personal account, then later make withdrawals from cash machines in Atlantic City. He put off closing dates, and in August, he shut down his law office on Canal Street.
“We were really worried,” said Jaime Wong, the pro bono lawyer for a couple who lost more than $400,000. “We were afraid he would disappear.”
Ms. Wong said her clients, Yat and Yi Ng, had been relying on Mr. Lee to save them money. They had planned to reinvest the proceeds of one investment property quickly to avoid paying capital gains taxes, a common maneuver called a 1031 exchange. It was only after Mr. Lee took the profits from the sale — $426,860 — and stopped taking their calls that the couple realized something was wrong.
“When it blew up, a lot of people were quite surprised,” Ms. Wong said. “He never struck people as anybody who would do something like that. A lot of lawyers told me, ‘Oh he was a nice guy.”‘
The Ngs were compensated by the Lawyers’ Fund, and Mr. Lee was sentenced May 24 to one to three years in prison. His lawyer declined to comment, and Mr. Lee could not be reached. He has been suspended from the bar and is likely be disbarred in July, said Thomas J. Cahill, who is prosecuting his case before the Departmental Disciplinary Committee of the New York State Supreme Court.
“There are a lot of cases where people have been disbarred involving escrows,” Mr. Cahill said. “I mean, a lot.” Mr. Rosen, the Garden City lawyer, was one of them. He resigned from the bar in October 2004 and has pleaded guilty to grand larceny.
His former clients said they are still amazed by the tales of his prolific and indiscriminate thefts. He stole money from young couples, from elderly women and from dead people, prosecutors and his clients said. He took $5,500 from one man and $296,425 from another.
Mr. Rosen, who would not comment for this story, struck many of his clients as competent and kind but sometimes disorganized and socially awkward. He bounced clients’ children on his knees like a grandfather, but sometimes forgot papers at closings and neglected to return phone calls.
Born in 1943, Mr. Rosen received a bachelor’s degree from New York University, earned a law degree from New York Law School and was admitted to the bar in 1966, according to Martindale-Hubbell, a legal directory.
He had a solid reputation on Long Island and found clients through word-of-mouth and referrals. Homeowners sent their neighbors to him. Couples like Howard and Allison Edelman of Smithtown were referred by their real-estate agent. Brokers and bankers respected him.
“It’s like this guy went from being great to being a horror,” said Mary Cooper, whose company, Morton M. Haves Real Estate, referred a seller to Mr. Rosen. “We didn’t know what was happening. It was a horrible, horrible experience. The best thing we have is our clients’ trust.”
Mr. O’Donnell, the prosecutor, said his office later traced the first thefts to 1999. To steal from home buyers, he took their 10 percent down payments. To steal from sellers, he stood in for them at the closing, then took a portion — or all — of the proceeds. Like many lawyers caught stealing from escrow funds, Mr. Rosen ran a solo practice. He had an assistant, but no internal accountants looking over his shoulders or legal partners whose careers could be undermined by Mr. Rosen’s actions.
He charged a modest flat fee for steering a deal through contract and closing, often attracting clients who didn’t want to hire a lawyer but couldn’t navigate the process of buying and selling a home in New York without one.
“I moved here from Dallas, Tex., and when we sold our house there, there were no lawyers involved,” said Ron Tamir, another of Mr. Rosen’s clients. “I thought, ‘What’s the big deal?’ I ran into my next door neighbor, and I said, ‘You know a good lawyer?”‘
Mr. Rosen had unfettered, unmonitored access to the escrow accounts in his name, and he sometimes told clients he needed to hold money in escrow while a certificate of occupancy was pending or old code violations on a house were ironed out, clients said.
Eleanor Danziger, 82, hired Mr. Rosen as she prepared to sell her home in Woodmere and move to Manhattan. After the closing, Ms. Danziger still had to perform a few minor fixes to bring her home up to code, so the buyers agreed to set aside $50,000 of the purchase price in an escrow account and release the money once the work was done. When the work was finished in June, Mr. Rosen said he would send Ms. Danziger the $50,000, she said. It never came.
“When we went to his office, we were not impressed,” she said. “It was less than modest. My son is an attorney, so I know what a substantial practice can be. But this was like, by the seat of the pants. He wasn’t making his money from the fees. He was making his money from the other stuff.”
Ashok and Arti Singh said they lost out on a home purchase after hiring Mr. Rosen. After offering $600,000 on a home on Long Island, they gave Mr. Rosen a $60,000 check to be used as a down payment. But after several days of silence, the Singhs learned the sellers had signed with another buyer.
“He didn’t put my money into escrow,” Ms. Singh said. “That’s why I was losing the deal. We went through hell. I’m still in the same house.”
Ms. Singh said she called Mr. Rosen’s office repeatedly but got only answering machines. When she reached him, he promised to send her money back, and a check arrived in the mail. It bounced.
Most of his clients were middle-class families or elderly people living on fixed incomes, such as Gertrude Marcus, who sold her home in Hewlett to finance her retirement in Florida. Or the Thalers, who sold their home in Old Bethpage and planned to use the profits to finance a new home in Las Vegas.
Many of Mr. Rosen’s victims have been compensated by the Lawyers’ Fund, which is financed by lawyers’ registration fees and reimburses victims of legal fraud. The fund has so far paid $1.9 million of the estimated $3.6 million to $4.7 million Mr. Rosen stole from his clients.
Mr. Rosen’s lawyer, Thomas Liotti, said that Mr. Rosen had not spent the money lavishly or wantonly but had been threatened and shaken down for cash by former clients. In October, The Daily News ran a photograph of Mr. Liotti standing in Mr. Rosen’s offices, which had been trashed and burglarized, presumably by those angry clients.
Mr. Liotti would not elaborate on the bizarre allegation but said Mr. Rosen had been sick and victimized. Mr. Rosen’s former girlfriend reiterated that story, but spoke on the condition she not be named, saying she feared the people who ransacked Mr. Rosen’s office.
She said Mr. Rosen had taken the escrow money, hoping that he would win a large case on appeal and be able to repay the accounts. But the appeal failed, he kept stealing and had a nervous breakdown and attempted suicide, the girlfriend said.
Mr. O’Donnell, the prosecutor, had less sympathy. He said Mr. Rosen is broke and has no property the county can seize and sell.
On November 22, 2019, the 37th Judicial District Court of Bexar County revoked the disciplinary probation of San Antonio attorney Joe Jesse Ponce III [#24014329], 61, and suspended him from the practice of law for 11 months, effective November 22, 2019, and ending October 21, 2020. The court found that Ponce materially violated the terms and conditions of his July 6, 2017, judgment of partially probated suspension.
“He didn’t give an explanation” for the thefts, Mr. O’Donnell said. “It was just to fund a lifestyle. He lived in a very exclusive neighborhood in Oyster Bay Cove.”
Today, many of Mr. Rosen’s clients are still angry, at him and at prosecutors. Mr. Thaler said his home sale closed in September 2004 — two months after prosecutors began getting complaints about Mr. Rosen, and one month before his arrest.
“While they were waiting, he stole from us,” Mr. Thaler said.
Katie Grilli-Robles, a spokeswoman for the Nassau County district attorney’s office, rejected the charge, saying the path from investigation to arrest was swift.
Mr. Rosen is expected to be sentenced to two to six years in prison this Tuesday. Clients said his sentencing would bring them some comfort, but added that they were still shaken after realizing their own vulnerability.
“There’s no way to guard against something like that happening to you,” Mr. Thaler said. “If someone’s out to defraud you, they’re going to win every time.”
Some Ways to Protect Yourself
ALTHOUGH there are few fail-safe ways to guard against theft in real estate transactions, there are preventive steps that can be taken.
Some lawyers recommend having an insurance policy against escrow deposits. Others suggest that lawyers put up a bond against the funds, the same way someone accused of a crime must put up a bond to avoid jail before a trial, or that escrow accounts be set up to require a client’s authorization before any withdrawal.
But those are unorthodox tactics, and most lawyers say the easiest way to guard against theft is to know whom you are hiring.
Find a lawyer through friends, family or clergy, or get referrals from the New York State Bar Association or the New York City Bar Association. There is a modest fee for the service.
Call a local grievance committee to find out whether a lawyer has been disciplined in the past. For lawyers in Manhattan and the Bronx: (212) 401-0800; for Brooklyn, Queens or Staten Island: (718) 923-6300; for Nassau and Suffolk Counties: (631) 231-3775; or for the Hudson Valley: (914) 949-4540. Joshua Stein, chairman of the Real Property Law section of the New York State Bar Association, said clients can also deposit their escrow funds with a title insurance company, bypassing a lawyer’s escrow account.