Attorney General Targets Mortgage Fraud Ring

New York State Attorney General Spitzer today announced that he has filed a lawsuit alleging that a group of real estate sellers, mortgage brokers, attorneys, and appraisers pursued a fraudulent real estate flipping scheme targeting minority neighborhoods in Brooklyn. In addition, the Attorney General announced that he has entered into consent decrees with some of the defendants that will provide substantial monetary relief to victims and stringent oversight of future real estate activities by the settling defendants.

According to the lawsuit, defendants Isaac Katz and Yoel Silberstein devised a scheme in which they purchased distressed properties in the Brooklyn neighborhoods of Crown Heights, Bedford-Stuyvesant, East Flatbush, East New York and Bushwick, and then enlisted the services of a front-man, mortgage brokers, and real estate lawyers to dupe purchasers and lending institutions in order to obtain significant resale profits.

The lawsuit alleges that defendant Amenophis Alleyne found prospective minority buyers with excellent credit to purchase the properties. The minority buyers, many of whom were Alleyne's family and friends, allegedly were told that the properties were "investment opportunities" that could be purchased with no money down. They were also assured that rental income they would receive from prospective tenants would more than cover any mortgage payments.

According to the complaint, the mortgage brokers, defendants Theodore Welz and Shaya Saks, induced banks into issuing loans for the properties by preparing loan applications that misrepresented the borrowers' income and assets and falsely stated that the borrowers were making significant down payments. According to the lawsuit, the banks were also provided with false appraisals, prepared by real estate appraisers including defendants Jeffery Richardson and Erik Johnson, that significantly inflated the values of the properties.

Defendants Benzion Frankel, Rephoel Weitzner, Devon Clarke, and Joseph Treff, the real estate attorneys who represented the lenders, the buyers and the sellers at the closings, prepared loan documents and public filings (including deeds and real estate transfer tax records) that allegedly misrepresented the actual sales prices of the properties.

According to the lawsuit, defendants Katz and Silberstein reaped substantial profits from their fraudulent scheme, which was carried out dozens of times between 2002 and early this year. In one case identified in the suit, they purchased a property for $205,000 and sold it later the same day for $370,000. The buyers, the lawsuit alleges, were unaware that their "no money down" deals were being accomplished only by hiding the true nature of the transactions from their lenders. As a result, many buyers were saddled with large, high-interest-rate mortgages they could not afford. Some allegedly ended up in default and foreclosure, ruining their once-excellent credit. The lawsuit further alleges that the scheme artificially inflated market prices of homes in the affected neighborhoods as appraisers, sellers, real estate brokers and others seeking to value properties in those areas relied on the false sales prices reported in deeds and other public records.

"The perpetrators of this scam promised minority home buyers an opportunity to climb the economic ladder," Spitzer said. "In reality, the defendants profited handsomely while their victims saw their financial security impaired or even ruined. By imposing significant monetary penalties on the participants in the scheme, we hope to send the message that fraudulent and discriminatory real estate deals will not be tolerated in the State of New York."

The Attorney General has entered into consent decrees resolving the lawsuit against defendants Katz, Silberstein, Welz and Saks. The decrees require:

  • payment of nearly $1.8 million in restitution and penalties;
  • a detailed accounting of the real estate transactions conducted by the mortgage fraud ring;
  • extensive monitoring of future real estate activities by defendants Katz and Silberstein; and
  • significant restrictions on mortgage brokering activities by defendants Welz and Saks.

The funds remitted pursuant to the decrees will be used to compensate victims of the scheme who file complaints with the Attorney General. Any remaining funds will be retained by the State as penalties.

The lawsuit will proceed against defendant Alleyne as well as defendants Clarke, the lawyer for the buyers at the closings; Frankel and Weitzner, lawyers for the defrauded banks; Treff, the lawyer for defendants Katz and Silberstein; and Richardson and Johnson, the appraisers.

This case is being handled by Assistant Attorneys General Brian J. Kreiswirth, Beth S. Frank, and Brian J. Schmidt under the supervision of Natalie R. Williams, Chief of the Civil Rights Bureau.

Attachments:

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