Saturday, November 27, 2010

LEGAL NEWS: Real estate attorney faces malpractice suit

Gertrude Banks, who lived in Washington, D.C., desired to take a loan out on a property she owned in New Jersey. She agreed in writing that she owed and would pay five relatives of her deceased husband $30,000 each out of the loan proceeds, according to court documents. None of the relatives lived in New Jersey.

New York attorney Jordan Kapchan handled the closing of the loan transaction, and also secured title insurance for the transaction from a New Jersey insurer.

Originally, Kapchan followed instructions to disburse $30,000 each to the five relatives, and cut checks to them, which were returned to him. With the returned checks, Kapchan received a letter from a woman named Vivian Prince, who claimed to be working on Banks' behalf, instructing him to cut a single check for $150,000 to Banks, which Kapchan did. Banks cashed that check, court documents state.

After closing, Banks defaulted on the loan and the lender commenced foreclosure proceedings. Her husband's relatives intervened in the foreclosure proceedings, claiming that Banks had defrauded them out of their interest in the property and not paid them their due. When the title insurer verified that the relatives had not been paid, the insurer paid each of the five relatives $30,000.

The title insurer, First American, then sued Kapchan in a New Jersey Superior Court for legal malpractice in not closing the transaction to professional standards and failing to disburse the funds in accordance with the HUD-1 settlement statement he prepared, which showed the $30,000 payments to each of the five relatives. Kapchan moved for the case to be dismissed, on grounds that the New Jersey court had no jurisdiction over him.

The trial court agreed with Kapchan and dismissed the case, finding that because Kapchan was a New York attorney and all the parties and funds involved were from states other than New Jersey, First American had not proven that Kapchan had sufficient contacts with the state of New Jersey for the New Jersey courts to gain jurisdiction.

First American appealed to the Appellate Division of the New Jersey Superior Court, which overturned the lower court's ruling. The Appellate Division clarified that First American was not claiming that Kapchan had sufficient contacts with New Jersey for the state to have general jurisdiction over him; rather, the title insurer argued that the specific loan transaction on a New Jersey property from which the matter arose endowed the New Jersey court with specific jurisdiction over Kapchan in connection with this transaction.

The court agreed with First American's rationale, holding that "the real estate itself provides a very tangible and central nexus between Kapchan, who prepared all or most of the transactional documents, including the HUD-1, and the State of New Jersey."

Additionally, Kapchan, by his own admission, acted as the closing agent for a New Jersey-based title company. As a result, it would not offend "traditional notions of fair play and substantial justice" for New Jersey courts to exercise jurisdiction over Kapchan in this specific situation. The trial court's ruling was reversed and the case sent back for further proceedings.

Tara-Nicholle Nelson Inman News November 10, 2010

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