Spitzer Announces Help For First-time Home Buyers Victimized In Real Estate Scam
Attorney General Spitzer announced today that 130 first-time homeowners who were the victims of a complicated real estate scam will see their mortgages reduced by 24%. The change will result in the homeowners saving a total of $5.6 million in principle and interest payments over the life of their loans.
Beginning in 1997, Clarence businessman Robert Palano bought depressed properties on Buffalo's East Side and then re-sold the homes at vastly inflated prices. Palano targeted African-American residents by advertising in black media outlets, offering the promise of home ownership with virtually no down payment required.
The Attorney General's investigation revealed that Palano failed to provide notices to purchasers that are required under the federal Truth in Lending Law and that he actively discouraged the buyers, many of whom had credit problems, from using lawyers or home inspectors, and from obtaining independent appraisals. An independent appraisal would have revealed that Palano's sale prices far exceeded market value .
To make his scheme work, Palano held the mortgages on the properties, often charging interest rates of 11%, and then sold the notes to Associates Financial Services, Inc. of Texas. To persuade Associates to purchase the mortgages, Palano falsely told the company that the sales prices for the homes were 20% more than they actually were, and that the purchasers had made 20% down payments when, in fact, they had not.
The inflated prices were supported by appraisals of the properties done by a local appraiser, Harry Sanders. Sanders was hired by Palano and is being stripped of his license because of his participation in the scheme. Associates was not aware of the scheme, or of the inflated appraisals, when it purchased the notes.
Even though Associates had nothing to do with the scam, the company has agreed to reduce the mortgages on 130 of the properties by a total of $1.6 million, or 24%, so that the mortgages more accurately reflect the homes' true value. Typically, homeowners will see their mortgages reduced by about $15,000, saving them $130 on their monthly payments and a total of over $35,000 over the life of their loan.
"This was a textbook case of how innocent, hard working people looking to own their piece of the American Dream were taken advantage of by a con man," said Spitzer. "As a result of this settlement, the homeowners will have their mortgages significantly reduced."
As part of a civil settlement with the Attorney General's office, Palano will pay an additional $225,000 that will be shared by homeowners, and over $56,000 in penalties and costs to the State, as well as change his business practices.
Among the business practices Palano must now follow are:
- Provide anyone who purchases a home from him with an appraisal from an independent appraiser;
- Requires Palano to put all of his promises in writing;
- Not discourage consumers from using their own attorneys, appraisers or home inspectors;
- Make sure that all structural defects in a house are repaired before the house is sold; and
- Honor all warranties he gives with a home, or pay damages to the consumer.
Sanders will permanently surrender his appraiser's license and pay a total of $6,000 in penalties and costs to the State.
Buying a home is the biggest investment many of us will make," said Spitzer. "It's especially important for potential home buyers to take the time to have a home inspected, research its value, and obtain the best mortgage possible. Taking these steps before buying a home can save years of headaches, and thousands of dollars, down the road. (See attached tip sheet)
Spitzer commended Associates for voluntarily reducing the victims' mortgages.
Taking part in the news conference with the Attorney General were Nathania Adams of 537 Minnesota, Paulette Handy and Arlette Harriss of 74 Arden, and Kim Dickerson of 94 Andrews, Cheektowaga.
Sanders settlement was approved by State Supreme Court Justice Frank A. Sedita, Jr.
In a separate but related case, the Attorney General also announced that Niagara Capital Corporation, of which Palano is President, illegally collected tens of thousands of dollars from low income tenants who receive what are known as Section 8 federal rent subsidies.
This week, Niagara Capital pled guilty in State Supreme Court to a single count of Rent Gouging in the First Degree, a class E felony. Under the law, the company faces a possible fine of $10,000 or double the amount of the corporation's gain from the offense.
Under federal law, the maximum rent that may be charged to those who receive Section 8 benefits is established by the federal Department of Housing and Urban Development. Landlords are not allowed to charge tenants any additional rent.
According to charges, the company and its employees required more than 30 Section 8 tenants to make additional payments of up to $265 per month for an "option" to purchase the rented properties. The purchase of this "option" was in fact mandatory and Niagara Capital employees made it clear that Section 8 tenants would not be allowed to rent the properties unless they also agreed to pay for this "option."
By its plea, Niagara Capital admitted that these additional payments were, in actuality, additional rent that it was not authorized to collect.
As part of its plea, Niagara Capital admitted that it collected approximately $70,000 in illegal rent payments from Section 8 tenants between 1996-2000. Palano has agreed to repay $70,000 to the Section 8 tenants, plus interest.
The case was handled by Assistant Attorney General James Morrissey and Investigator Harold Frank of the Buffalo Regional Office, under the supervision of the Consumer Frauds and Criminal Prosecution Bureaus. Spitzer thanked Investigator Robert Sulecki of the New York State Police for his assistance in the case.