On July 8th, the
Manhattan District Attorney announced the indictment of 13 people involved in what he called a multi-million dollar mortgage-fraud scheme that victimized low-income homeowners and lenders.
The 13 were employed in nearly every profession in the real estate industry, including bank workers, real estate agents, lawyers, and appraisers.
The District Attorney believes that the 13 were involved in 19 different sham real estate transactions. Each of the defendants has been charged with a handful of larceny and fraud charges, along with enterprise corruption charges, which could result in 25 year sentences.
Prosecutors believe that the fraud occurred over a four year period ending in April. They believe it targeted Cypress Hills, East New York in Brooklyn, Washington Heights in Manhattan, Long Island, and Westchester County.
They believe the criminal enterprise tricked lenders into issuing
loans for homes whose values were artificially inflated by the group, and then had lawyers pocket some of the money. They believe the losses are in the range of over $100 million and that the 19 transactions called shams totaled $12 million.
The lenders that took the heaviest losses according to the announcement were:
- New Century Mortgage ($32 million)
- Fremont General ($18 million)
- Long Beach Mortgage Company ($9 million)
Among those indicted on Wednesday, were the three principles of a Long Island based
mortgage broker, AFG Financial Group, Aaron Hand (President), Eugene Culbreath and Eric Shields. According to the indictment, the three principals were the masterminds of the sham plan hatched in Manhattan Strip Clubs in 2004.
The plan sought out homeowners in trouble with their mortgages, often by finding owners who had missed mortgage payments and offer to take their homes off their hands. If the owners agreed, the defendants would then recruit buyers with good credit histories who would apply for mortgages to buy the properties. At the same time, the defendants would use falsified documentation to artificially inflate the home’s value to get the largest mortgage possible.
Finally at closing, the seller’s lawyers would just pocket the checks from the unsuspecting lenders. Buyers who were promised by the group that they could get out of the deal at some point were stuck with mortgages they could not afford.
Mr. Hand pleaded not guilty before Judge Michael H. Melkonian in State Supreme Court in Manhattan and was soon released on $400,000 cash bail, according to his lawyer. Seven others have already pleaded not guilty, and the other four are not yet in custody. Twelve other people have already pleaded guilty to their involvement in the crimes.
Not only did AFG inflate
the value of homes, but it also invented some. There was one property that was supposed to have a two-family Bronx house valued at $500,000 which instead was an empty, weedy lot.
Mr. Morgenthau, district attorney, said that “The Banks had no occasion to be concerned or to check up because they were going to get rid of these mortgages. It was too easy for corrupt employees to falsify documents.” He believes that a financial system that encouraged the bundling of many overvalued home loans for sale as securities to unwitting investors and for kick-starting the current economic crisis, also played a role.