In Re Spencer

Facts

D has been a member of the Bar since 1983 and a licensed real estate broker since 2003. In March 2008, a prospective client, Smith-Canfield, met with the accused to ask about filing for bankruptcy. Smith-Canfield told the accused that she anticipated receiving approximately $30,000 from the sale of real property in another state. D advised her that she could take advantage of an exemption in the bankruptcy law if she used the proceeds from the out-of-state property sale to buy a home and then filed a Chapter 13 bankruptcy petition. She needed to buy a home within one year of the sale of her other property. D explained that he was a real estate broker and could look for an owner-financed property for her. Smith-Canfield agreed to have the accused represent her, and the accused began searching for a suitable property and also preparing the bankruptcy filing. D learned about a relatively new home that might fit Smith-Canfield's needs. The owner was in financial trouble, and the person who held the trust deed was willing to finance Smith-Canfield's purchase. D estimated the amount due on the trust deed and, based on that estimate, determined the lowest possible offer that the owner would be likely to accept. He advised Smith-Canfield to offer to pay $225,000 and to put $25,000 down. That offer was below both the market value and the listed price. Smith-Canfield accepted the accused's advice and asked him to prepare an offer to that effect. She was aware that, if the owner accepted her offer, the accused would split the sales commission with the owner's real estate agent. Smith-Canfield made her offer contingent on three conditions. First, the owner had 'to rebuild [a] retaining wall along Old Fort Rd. Second, he had to 'remove all junk from the house.' Third, he had to 'have the carpets cleaned. If the stains on the carpet do not clean out,' then the owner had to give Smith-Canfield $1,000 to replace the existing carpets. Based on D's advice, Smith-Canfield did not impose any other conditions on the sale. As the accused later explained, the goal was to purchase the property quickly at the lowest possible price. D advised Smith-Canfield to waive a professional inspection, even though the preprinted offer stated that it was advisable to have one. D concluded that, because the house was relatively new, a professional inspection was unlikely to be worth the cost, especially in light of Smith-Canfield's limited financial resources. Based on Dd's advice, Smith-Canfield waived a professional inspection. The offer was accepted. During the final walk-through, D and Smith-Canfield noted that the masonry blocks that formed the retaining wall had been restacked and the carpets cleaned. The sale closed that month, and D received approximately $5,000 as his share of the real estate sales commission. D's commission came out of the proceeds that otherwise would have gone to the seller. In May 2008, D filed Smith-Canfield's Chapter 13 bankruptcy petition. Shortly afterward, Smith-Canfield received a letter from the City of Klamath Falls, stating that the dirt slope at the back of the yard violated the city code and that she needed either to '[r]estore the slope of [her] property to [city code] specifications * * * or provide an engineered plan for a retaining wall.' Smith-Canfield contacted D, who investigated the city's allegations. D wrote the seller and demanded that he bring either the slope or the retaining wall into compliance. The seller responded that, because he had limited financial resources, he could not be of any help. D also questioned whether the city had the authority to require Smith-Canfield to restore the slope or provide an engineered retaining wall. D believed that she could have the funds in a year's time, based on her Chapter 13 plan. Accordingly, he asked for and received a one-year extension from the city for Smith-Canfield to respond to the city's demand. Smith-Canfield mentioned her dispute with the city to another lawyer. That lawyer later contacted D, questioning his handling of both the real-estate purchase and the city's notice of a code violation. D withdrew from representing Smith-Canfield. Smith-Canfield brought an adversary action against D in the bankruptcy proceeding, alleging that he had breached his fiduciary obligation to disclose conflicts of interest and that he also had breached his professional duty regarding the purchase of her home. The bankruptcy court found, by a preponderance of the evidence, that D had breached both duties and that Smith-Canfield had suffered financial injury as a result. In early 2011, Smith-Canfield's employer in Klamath Falls went out of business, and Smith-Canfield lost her job. Later that year, she converted her bankruptcy proceeding from Chapter 13 to Chapter 7. Eventually, she gave up the home that she had bought, with the result that she lost her down payment and three years of payments on the home. P filed a complaint against D, alleging that he had violated RPC 1.7(a) and RPC 1.8(a). The trial panel found that the accused had violated both rules and determined that a 60-day suspension was the appropriate sanction. D petitioned for review in this court.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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