Non Profit Group Named In Federal Housing Scam
Attorney General Spitzer today announced a $7 million lawsuit against a New York City non-profit agency and its principals, a real estate developer, and a private lending agency official for their involvement in a massive federal housing scam that has left dozens of tenants living in squalid conditions.
The lawsuit, filed in Manhattan State Supreme Court, alleges that between November 1997 and December 1998, the Brooklyn-based "Helpline Soul Rescue Ministry" acted as a front in the purchase of 65 one-to-four family dwellings in Brooklyn.
Helpline used its non-profit status to obtain $13.7 million in federal loan guarantees to buy the buildings at inflated prices. Helpline and those charged in the case conspired to skim $2.3 million from the loan moneys.
The 65 buildings are now in default and have fallen into deplorable condition. They have been cited for close to 3,000 housing code violations including lack of heat and hot water, peeling lead paint, broken floors and windows, leaky roofs, and mice, rat and roach infestation.
"Those involved in this conspiracy took taxpayer money designed to encourage home ownership in low-income neighborhoods and instead, used it to line their own pockets," said Spitzer. "This was an intricate plot where the only motive was greed and in the end, innocent tenants have been hurt and taxpayers are left footing the bill."
The principals charged with fraud in the conspiracy are: the estate of the late Gennie Phillips, president and chief executive office of Helpline; Nelson Phillips, of 170 Garden Place, West Hempstead, Gennie Phillips' husband and an officer and director of Helpline; Michael Fox of 27 Dovecote Lane, Commack, vice president of Mortgage Lending of America (MLA); and Beatrice Sukhdeo of 1440 Surrey Lane, Rockville Center, owner of Tri-Metro Realty Corp. and other companies used in the scheme.
Although Helpline had no housing experience, it was able to access the loans through the federal Housing and Urban Development Agency's 203 (k) program. HUD has guaranteed billions of dollars of loans nationwide under the program, with a significant portion of the money coming to New York.
Under the scheme, Sukhdeo would pay Helpline $5,000 for each building that it bought for her. In addition, the purchase price of a building, typically $130,000, would be inflated by 35 percent to $200,000, with the principals then sharing in the excess money. All of the loans were steered to Fox at MLA.
Sukhdeo's company, Tri-Metro, was to rehabilitate and manage each of the purchased buildings. But Tri-Metro did little in the way of repairs, and because the rents from the building could not support the inflated price of each mortgage, the buildings quickly went into default. Because the loans were guaranteed by HUD, it is very likely that ultimately, taxpayers will foot the bill for all of the losses.
"Because of this massive fraud, a program that should have helped stabilize low-income neighborhoods, instead only increased neighborhood blight and left tenants living in squalid conditions," said Spitzer.
In addition to the fraud charges, Spitzer is also seeking the dissolution of Helpline as a non-profit agency. Spitzer's duties as Attorney General include the oversight of all non-profit groups in the state.
The case came to Spitzer's attention last year through complaints by tenants living in the buildings purchased by Helpline.
Also taking part in the news conference was Jerry O'Shea, President of the Brooklyn Tenants Council.
The case is being handled by Roger Waldman, Patricia Cheng, and Joseph Wilson of the Investor Protection Bureau, under chief Eric Dinallo; Marla Simpson of the Charities Bureau, under chief Bill Josephson; Assistant Deputy Attorney General Dan Feldman; Assistant A.G. Galen Kirkland and Assistant First Deputy Attorney General Francine James.