13 charged in $100 million mortgage fraud in NYC

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July 9, 2009

Anonymous The Salem News Thu Jul 09, 2009, 03:55 AM EDT

NEW YORK (AP) — Twenty-five people, including lawyers, bankers, mortgage brokers and appraisers, and a mortgage company have been charged with committing mortgage frauds involving at least $102 million, New York City prosecutors said Wednesday.

AFG Financial Group Inc. ran the scheme, said Manhattan District Attorney Robert Morgenthau. He said AFG and its accomplices stole millions of dollars from banks that had loaned money to buy real estate.

The banks in some cases later sold the mortgage debts as investments, but because the investments were based on deals that never occurred, the banks, the property sellers, and the investors were left empty-handed.

Cheated banks and lenders included New Century Mortgage Corp., which lost $32.2 million; Countrywide Home Loans Inc., taken for $7.9 million; and Washington Mutual in Long Beach, N.Y., which lost $8.6 million.

"This is one of the reasons for the mortgage crisis," said Morgenthau. "This kind of activity is what led to the mortgage crisis."

He said the suspects used inflated property appraisals and phony loan packages, forged W-2 forms, pay statements and bank documents to perpetrate the largest mortgage fraud ever in the New York City area.

At a news conference, Morgenthau showed a color photograph of an overgrown vacant Bronx lot that defendants claimed was the site of a two-family house in order to get a $500,000 mortgage.

Asked whether AFG had legitimate activity, Morgenthau said, "If it did, it was by accident." He said the business, headquartered in Garden City, on Long Island, was established at its outset as a criminal enterprise.

Morgenthau said 12 of the 25 defendants, including two lawyers, have pleaded guilty to charges that include larceny and fraud. "Most of them are facing state prison time," he said. He added that the other 13 include three lawyers.

The district attorney said that between June 2004 and April 2009, the group would find "distressed" real estate and then get a "straw" buyer — who had good credit but needed cash — to front for the purchase of the property.

That buyer usually did not know the transaction was a sham. The buyers were told this was an investment opportunity that would help people save their homes, earn them and other investors a healthy return and cost them nothing but their signatures.

The AFG conspirators would strike a deal to buy, and then get a bank to finance the purchase, Morgenthau said. He said the lawyers said they put the mortgage money in escrow accounts but they and their accomplices actually took the money without paying the seller or anyone else.

"These attorneys often did not meet or communicate with their so-called clients until the day of the closings ... and were paid off by AFG for their efforts," Morgenthau said.

Meanwhile, the straw buyers were left with bad credit and no investment return, and the lender foreclosed on the seller's property and took ownership.

In some cases the banks had already sold worthless mortgage paper on the overvalued real estate on the secondary investment market.

The defendants were to be arraigned Wednesday in Manhattan's state Supreme Court. All are charged with enterprise corruption and face up to 25 years in prison if convicted.

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13 charged in $100 million mortgage fraud in NYC

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