Mortgage Fraud Scheme Targeted Distressed Properties

The Manhattan District Attorney’s office indicted 13 people and a mortgage origination company for allegedly perpetrating a mortgage fraud scam that ran for four years and cost lenders more than $100m. The indictments and convictions come after a 10-month investigation of the Garden City, Long Island-based AFG Financial Group and 19 of its mortgage transactions. In the indictment, District Attorney Robert Morgenthau alleges the defendants targeted distressed residential properties in New York City and surrounding counties. According to Morgenthau, AFG would find straw buyers with good credit and dupe them into investing an up-front payment and completing mortgage application documents. The straw buyers were told they would help distressed borrowers stay in their homes and receive a return on their investment. The homes were allegedly over-appraised by AFG cohorts and the straw buyers’ loan worthiness was falsely inflated to help secure more money from the mortgage. When the money came, the straw buyer was left with nothing but ruined credit and the conspirators laundered the money and kept it for themselves, the district attorney alleged. Morgenthau said flaws in the city’s deed recording and registration system and limited regulatory oversight of the mortgage industry led to AFG’s four-year-long scam. “These defendants were able to get away with this conduct for four years because the mortgage industry simply passed the defective loans to the secondary markets with little motivation to scrutinize the actual risks, industry regulators paid little or no attention, and the city and state’s systems provide for no verification of property sales,” Morgenthau said in a statement released by his office. “These defendants and others who commit mortgage fraud contributed to the failure of the securitized debt market. Our investigation will continue as we make efforts to hold accountable those who cheat, lie and steal to undermine our financial systems for personal gain.” In one such transaction, the district attorney’s office said, the defendants created an appraisal report for a duplex with an alleged value of $500,000, but the property in question was nothing more than a vacant lot. The 13 defendants were indicted for enterprise corruption, a class B felony punishable by up to 8 years, four months to 25 years in prison, second degree grand larceny, a class C felony punishable by up to 5 to 15 years in prison, scheme to defraud in the first degree, a class E felony punishable by up to 1 year, four months to 4 years in prison, and conspiracy in the fifth degree, a class A misdemeanor punishable by up to 1 year in jail. An additional 12 people pleaded guilty to felonies related to the alleged scheme. The 25 people implicated in the scam either worked as principals or employees of AFG, or served as lawyers, appraisers and bank liaisons for the firm. Lists of the indicted and convicted defendants are available on the statement released by Morgenthau’s office. Write to Austin Kilgore.

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