This Advisory Opinion concerns the following issues as formulated from facts and/or circumstances furnished by a requestor. The Commission approved this opinion on September 1, 2000, basing its approval solely on the facts and circumstances stated herein.
ISSUE 1. May an attorney or the attorney's law firm be compensated as the closing attorney by the buyer or seller in regard to a mortgage loan funded by bond funds through Mississippi Home Corporation when the attorney's spouse has been appointed to the Mississippi Home Corporation's board of directors?
ISSUE 2. May an attorney or the attorney's law firm be compensated as the closing attorney by the buyer or seller in regard to a second mortgage loan of which the Mississippi Home Corporation is a party by way of its down payment assistance program when the attorney's spouse has been appointed to the Mississippi Home Corporation's board of directors?
State law restricts the Mississippi Ethics Commission to interpreting and issuing opinions on Sections 25-4-101 through 25-4-119, 1972 Mississippi Code Annotated and Article IV, Section 109, Mississippi Constitution of 1890. Therefore, this opinion does not address the Mississippi laws outside the Commission's jurisdiction nor the governmental entity's internal rules and regulations.
The pertinent conflict of interest laws to be considered here are:
Constitutional Section 109 states:
"No public officer or member of the legislature shall be interested, directly or indirectly, in any contract with the state, or any district, county, city, or town thereof, authorized by any law passed or order made by any board of which he may be or may have been a member, during the term for which he shall have been chosen, or within one year after the expiration of such term."
Code Section 25-4-103(f)(i)(ii), (g)(v), (h), (o), (p)(i)(ii)(iii), (q) and (r) states:
"(f) 'Contract' means:
(i) Any agreement to which the government is a party; or
(ii) Any agreement on behalf of the government which involves the payment of public funds.
(g) 'Governmental' means the state and all political entities thereof, both collectively and separately, including but not limited to:
(v) Any department, agency, board, commission, institution, instrumentality, or legislative or administrative body of the state, counties or municipalities created by statute, ordinance or executive order including all units that expend public funds.
(h) 'Governmental entity' means the state, a county, a municipality or any other separate political subdivision authorized by law to exercise a part of the sovereign power of the state.
(o) 'Public funds' means money belonging to the government.
(p) 'Public servant' means:
(i) Any elected or appointed official of the government;
(ii) Any officer, director, commissioner, supervisor, chief, head, agent or employee of the government or any agency thereof, or of any public entity created by or under the laws of the State of Mississippi or created by an agency or governmental entity thereof, any of which is funded by public funds or which expends, authorizes or recommends the use of public funds; or
(iii) Any individual who receives a salary, per diem or expenses paid in whole or in part out of funds authorized to be expended by the government.
(q) 'Relative' means the spouse, child or parent.
(r) 'Securities' means stocks, bonds, notes, convertible debentures, warrants, evidences of debts or property or other such documents."
Code Section 25-4-105(2) states:
"(2) No public servant shall be interested, directly or indirectly, during the term for which he shall have been chosen, or within one (1) year after the expiration of such term, in any contract with the state, or any district, county, city or town thereof, authorized by any law passed or order made by any board of which he may be or may have been a member."
Pertinent facts and circumstances in the form of the requestor's letter, absent identifying data, are attached hereto and considered a part of this opinion.
Based solely on the facts and circumstances presented by the requestor, the Commission's opinion is as follows.
ISSUE 1. In Frazier v. State, 504 So. 2d 675, (Miss. 1987), the Mississippi Supreme Court set forth the four elements for applying the prohibition imposed by Constitutional Section 109 and thereby Code Section 25-4-105(2), both cited above. The four elements are:
1. Is there a governmental contract with the state, county, municipality
or district?
2. Does the public officer have an interest, direct or indirect, in the contract?
3. Is the contract authorized by a law passed or order made by a board or public body
of which the public officer is a member?
4. Was the authorizing law or order passed during the public officer's term or within
one year after the expiration (or termination) of such term?
The Mississippi Home Corporation [MHC] has advised the Commission's staff that there are at least four government contracts involved in a typical MHC bond transaction.
The four governmental contracts are as follows: 1) MHC's contract with each bondholder; 2) MHC's contract with the trustee of the bond proceeds; 3) MHC's contract with each generating lender; and, 4) MHC's contract with each serving lender.
Clearly, the above referenced contracts held by MHC are authorized by the MHC Board of Directors (the Board).
Therefore, elements 1, 3, and 4 having been met under the Mississippi Supreme Court's Frazier decision, the question to be answered in this opinion is whether the new appointee to the board will have a prohibited interest in the above referenced MHC contracts by way of the new appointee's attorney/spouse acting as the closing attorney on a transaction involving a MHC bond loan.
Also, in Smith v. Dorsey, 530 So. 2d 5 (1988), the Mississippi Supreme Court held a public official has an indirect prohibited interest in a contract in which the public official's spouse has a direct interest for purposes of Constitutional Section 109 and Code Section 25-4-105(2).
Based on the Smith decision that a public official has an indirect
interest by way of his or her spouse's direct interest in a governmental
contract, the question now becomes does the attorney/spouse of the new
appointee have a direct interest in the above referenced MHC contracts
should the attorney/spouse serve as the closing attorney on a transaction
involving a MHC bond loan.
The MHC has advised the Commission's staff that in each MHC bond loan there is available to each qualifying buyer/borrower a 3% cash advance and a 1% premium cash advance. Both the 3% cash advance and the 1% premium cash advance go to the approved buyer/borrower and can be used for the down payment and closing costs, including attorney fees incurred in connection with such mortgage loan.
The closing attorney, such as the new appointee's attorney/spouse, would have a direct interest in the MHC contracts referenced above should the closing attorney fees incurred in connection with such mortgage loan be paid from monies provided the buyer/borrower from a 3% cash advance or a 1% premium cash advance or if the seller employs the closing attorney and the sales contract provides that the buyer/borrower shall reimburse the seller for such costs and the buyer/borrower does so with a 3% cash advance or a 1% premium cash advance.
Therefore, should the new appointee's attorney/spouse have a direct interest in the above referenced MHC contracts as described in the preceding paragraph, then the new appointee will have an indirect interest in said MHC contracts in violation of Constitutional Section 109 and Code Section 25-4-105(2). This prohibition applies during the new appointee's term and for one year thereafter.
Also, Constitutional Section 109 and Code Section 25-4-105(2) will prohibit the new appointee's attorney/spouse from serving as closing attorney with respect to a MHC bond loan if the attorney fees are not paid with monies from the MHC bond funds. This prohibition applies during the new appointee's term and for one year thereafter.
The position set forth in the preceding paragraph is based on the fact that the mortgage loan funds available to the buyer/borrower are MHC bond funds. Clearly, new appointee's attorney/spouse compensation by the buyer/borrower or seller as closing attorney on the mortgage loan occurred because of the availability of the MHC bond funds. In other words, there would be no buyer/seller transaction and no mortgage loan of MHC bond funds, and therefore no closing, except for the availability of the MHC bond funds made possible by the above referenced contracts authorized by the MHC board of directors.
ISSUE 2. The MHC has advised the Commission's staff that there
is a 3% down payment assistance loan program whereby the buyer/borrower
gives MHC a second mortgage which is never available to a buyer/borrower
participating in a MHC bond mortgage loan.
The Commission believes this to be the "down-payment assistance program" referenced in the requestor's letter.
MHC is a party to the second mortgage contract required by way of MHC's 3% down payment assistance program.
Clearly, a member of the board of directors of the MHC board, including the new appointee, is prohibited by Constitutional Section 109 and Code Section 25-4-105(2) from having an interest, direct or indirect, in any contract to which MHC is a party.
As stated in ISSUE 1, the new appointee always has an indirect interest by way of the attorney/spouse's direct interest.
The attorney/spouse will have a direct interest in MHC's second mortgage loan agreements under the "down-payment assistance program" when the attorney/spouse is compensated to do the closing on such a loan.
Therefore, Constitutional Section 109 and Code Section 25-4-105(2) will absolutely prohibit the attorney/spouse from being compensated to do the closing on an MHC second mortgage loan under MHC's down-payment assistance program when such second mortgage loans are authorized by the MHC's board of directors of which the new appointee is a member. This prohibition applies during the new appointee's term and for one year thereafter.
Again, the requestor is cautioned to advise the new appointee that a recusal or an abstention will not prevent a violation of Constitutional Section 109 and Code Section 25-4-105(2). Even without a board member's vote, the authorization by the member's board nonetheless results in a contract in which the board member has a prohibited interest.
The professional rules governing attorneys consider any contract to
represent a client held by a member of a law firm to be held by the law
firm. A law firm cannot hold itself apart from its members in representing
one or more clients. Therefore, the above violation of Constitutional Section
109 and Code Section 25-4-105(2)
set forth in both ISSUE 1 and ISSUE 2 will occur regardless of whether
the loan closing is performed by the new appointee's attorney/spouse or
others in the law firm of the attorney/spouse.
The issue presented by the requestor also must be viewed as it relates to Code Section 25-4-101, set forth above. This code section sets the tone for the conflict of interest laws as the Legislature's "Declaration of Public Policy." This public policy can be summarized as any circumstance having the potential of creating suspicion among the public and reflecting unfavorably upon the state or local government should be closely reviewed by public servants with the intent to reduce or eliminate any suspicion on the part of the public which detracts from the public's trust in state or local government.
The attorney/spouse or others in the attorney/spouse's law firm being compensated to do the closing on an MHC bond-funded mortgage loan or an MHC second mortgage loan under MHC's down-payment assistance program when the new appointee is a member of the MHC board of directors which authorized the related contracts to the mortgage loan or second mortgage loan is a circumstance that can be expected to create suspicion among the public and reflecting unfavorably upon the MHC.
Therefore, to fully comply with the public policy mandate set forth
in Code Section 25-4-101
the attorney/spouse or others in the attorney/spouse's law firm should
not do the closing on an MHC bond-funded mortgage loan or an MHC second
mortgage loan under MHC's down-payment assistance program during the new
appointees term as a member of the MHC board of directors.
Ronald E. Crowe
Executive Director