Fraud and Prevention

Fourteen Charged in $100 Million New York Mortgage Fraud Scheme

By James Comtois
July 15, 2009

Thirteen individuals and one mortgage origination firm were indicted for allegedly perpetrating more than $100 million in mortgage fraud over four years in the New York metropolitan area.

According to Manhattan district attorney Robert M. Morgenthau, AFG Financial Group, Aaron Hand, Eugene Culbreath, Eric Shields, Matthew McDermott, Marc Zirogiannis, Kenneth Law, Kathleen Scanlon, Jeffrey Phelan, Jerry Strklja, Marilyn Mateo, Darlita Bostic, Allyson Hinds and Rajmohan Autar have been charged.

In addition, 12 individuals - Maria Albertina, Edmond Berookim, Christopher Carr, Patrick Kuhl, Fred Lax, Stephen Martini, Frank Miale, Giovanni Munive, Jennifer Schiff, Wayne Sisman, Sharon Thompson and Salvatore Trapani - have already waived indictment and pleaded guilty to felonies relating to their participation in the mortgage fraud scheme.

The defendants, who were unavailable for comment, include the principals and a number of employees of the mortgage company, as well as bank employees, appraisers and attorneys.

The investigation revealed that, from June 2004 and April 2009, Long Island-based AFG, along with a network of co-conspirators and accomplices, allegedly located distressed residential real estate properties in New York and surrounding counties and then engaged in a scheme to steal millions of dollars from banks using sham sales of those properties.

The conspirators caused the banks to front millions of dollars to finance purchases of the properties then walked away with most of the cash, leaving behind overvalued properties and worthless mortgage papers.

Founded by defendants Hand, Culbreath and Shields, AFG represented to lending institutions that it put together arm's length residential real estate transactions to be financed by secured mortgages. AFG allegedly paid property locaters to find properties suitable for their fraudulent ventures as well as recruiters to find straw buyers.

The straw buyers were told they had the opportunity to participate in risk-free real estate transactions and that the transactions would help distressed homeowners save their homes, while earning the straw buyer and other investors a healthy return on their investment. Instead, after an initial upfront payment, the straw buyers received nothing.

Because the defendants failed to make any mortgage payments after the first few months, the mortgage loans went quickly into default and the straw buyers' credit ratings were ruined. And, the sellers' homes went into foreclosure.

Once a straw buyer had been recruited and matched to a specific property, the defendants allegedly used forgeries and false records to enhance the fraud by falsifying the straw buyer's loan worthiness.

Defendants allegedly created forged documents such as W-2s and bank statements to increase the straw buyer's apparent income and assets so they could borrow more money. They also assembled the false loan packages to submit to lenders, assisted in the sham closings and helped launder the stolen funds.

Corrupt property appraisers provided written appraisals that inflated the apparent values of the properties beyond their true market value. Bank employees provided documents verifying that the forged bank statements were accurate.

Finally, AFG submitted the fraudulent applications with false statements and forged documents to mortgage lenders such as Countrywide Home Loans or New Century Mortgage Corp., which had employees in on the scheme.

At the real estate closings, AFG allegedly brought in lawyers to play the roles of legal counsel for buyers, sellers and banks. Instead of looking after their clients' interests, these lawyers allegedly made sure that the closings went smoothly, that no one asked any questions and that the principals of AFG received the lion's share of the funds obtained from the defrauded banks.

In one transaction, the defendants allegedly created an appraisal report for a two-family home with a stated value of more than $500,000, when in reality the location was a vacant lot.

The efforts of AFG have allegedly defrauded banks of more than $100 million. The investigation is ongoing.