A New York foreclosure law firm allegedly used its affiliated companies to “systemically” overcharge for foreclosure-related services and defraud Fannie Mae out of “millions of dollars,” the Department of Justice said in court this week.
According to the U.S. Attorney’s Office for the Southern District of New York, Rosicki, Rosicki & Associates engaged in a scheme with its wholly owned affiliates, Enterprise Process Service and Paramount Land, to markup foreclosure services by as much as 750% knowing that Fannie Mae would pay the bills.
In a complaint, the DOJ alleges that the Rosicki firm specializes in foreclosures, acting as counsel to mortgage servicers that use the firm to execute foreclosures in New York, a judicial foreclosure state.
Enterprise is a process server and Paramount is a title search company, both of which are “wholly owned and controlled by the two founding partners of Rosicki.”
According to the complaint, from May 2009 through the present, Rosicki, Enterprise, and Paramount performed specific foreclosure-related work on behalf of mortgage servicers.
The complaint alleges that Rosicki only used its own companies to serve process and perform title searches that were required to complete foreclosures on loans owned by Fannie Mae.
Or, that’s at least how it appeared.
The complaint states that instead of doing the work themselves, Enterprise and Paramount actually used third-party vendors to perform the majority of the work in question, and then applied “exponential” markups to the services performed.
In some cases, the markups were as much as 750%, despite Enterprise and Paramount adding “little if any value to the services that the vendors had performed.”
Enterprise and Paramount then submitted those allegedly marked up expenses, which exceeded market rates in many cases, to Rosicki.
Once the work was completed, Rosicki then passed the inflate bills along to those servicers, representing those bills to be true and accurate, despite knowing that the servicers would submit claims to Fannie Mae for full reimbursement of the expenses.
According to the complaint, the submission of those “fraudulently inflated expenses” caused Fannie Mae to pay out “millions of dollars” in falsely inflated foreclosure expenses.
In a statement provided to HousingWire, the firm denied the allegations and said that it plans to fight the charges.
“For over a quarter-century, Rosicki, Rosicki and Associates has been a highly-respected leader in the housing mortgage industry and widely admired for its dedication towards improving the broader community,” a spokesperson for the firm said in a statement. “The charges leveled against the firm are based on questionable legal theories, have no merit and will be vigorously challenged in court.”
Here, from the complaint, are a couple of examples of the alleged scheme:
Rosicki was well aware of the amount of mark-ups being applied to Enterprise’s bills. In fact, senior attorneys at Rosicki, including the Rosicki partners, were apprised of the revenue margins being made on each vendor, which ranged from 300% to 750%. For example, in an email copying the Rosicki partners dated May 7, 2009, Enterprise listed each of the individuals who performed actual process service work on behalf of Enterprise, listed the amounts charged by those process servers to Enterprise, and listed the extraordinary markups of those costs billed by Enterprise. The email lists the “ratio” of the inflated amounts billed by Enterprise as compared to the amounts billed by the process servers.
For example, a third-party vendor charged Paramount $75 for a title search; yet Paramount charged $275 for that same service. Paramount provided its bills to Rosicki, which submitted them to the Servicers and represented that they were the foreclosure expenses actually incurred, including for Fannie Mae-owned loans. The Servicers paid the bills and passed on the expenses to Fannie Mae, which paid them.
Following the initial foreclosure search, Paramount continued to make revenue through mark-ups. Specifically, for title continuation searches, which are updates to the foreclosure search performed during the course of a foreclosure action, Paramount paid its vendor $5-25 to perform the search and then billed the Servicer $125-135 for that search.
“As alleged in the complaint, for years the Rosicki law firm exploited its relationship with Fannie Mae, a government-sponsored entity, for its own financial gain by knowingly causing Fannie Mae to pay artificially inflated costs for foreclosure-related services,” Manhattan U.S. Attorney Geoffrey Berman said.
“This lawsuit demonstrates this Office’s continued commitment to root out fraud in all of its forms,” Berman added.
“With respect to both Enterprise and Paramount, Rosicki was aware that it was violating its obligations to Fannie Mae, yet throughout the relevant time period, it represented, to Fannie Mae as well as to the relevant Servicers, that it was fully in compliance with the Fannie Mae requirements that it had agreed to follow,” the DOJ states in its complaint. “Specifically, Rosicki falsely represented that the fees charged by Enterprise and Paramount were the actual, reasonable, and necessary costs incurred in performing service of process and title searches, and that those fees were competitive in the relevant markets.”
[Update: This article is updated with a statement from a spokesman for Rosicki, Rosicki, & Associates.]