Six Accused in $30M Bank Fraud Conspiracy
A New York mortgage banker and five others were indicted for their alleged roles in a $30 million property flipping scheme that defrauded lenders, investors and secondary market participants.
An indictment unsealed in federal court on May 6 alleges the six defendants inflated the prices of homes for sale in New York's Nassau and Suffolk counties and obtained mortgages that exceeded the collateral value of the properties.
The scheme was allegedly conducted between 2003 and 2008 and led by Aaron Wider through his mortgage banking company, HTFC Corp. HTFC relied on funding from warehouse lenders to issue residential mortgages to borrowers. Meanwhile, the lenders expected the Garden City, N.Y.-based mortgage company to ensure that the homebuyers would be able to pay the mortgages and that the market value of the homes fully collateralized the loans.
Instead, the indictment claims that Wider and three co-defendants—Manjeet Bawa, John Petiton and Joseph Ferrara—flipped properties to inflate their value. Then the conspirators are accused of lying to warehouse lenders on loan applications to obtain mortgage funding that was 80% more than the actual value for the homes.
At each closing, Petiton, a licensed attorney in New York, oversaw the home sales and simultaneously created false trusts into which title to the properties were transferred for no money, the indictment says. Petiton then immediately transferred title back to the co-defendants at nearly double the price to create a made-up paper trail.
Furthermore, the indictment claims another co-defendant, real estate appraiser Joseph Mirando, prepared invalid appraisals to justify the inflated prices to aid in the scam. HTFC closing attorney Eric Finger is also named in the indictment and is accused of participating in the fraud by concealing the actual sales prices of the properties by lying on federal-mandated settlement forms.
HTFC sold the mortgages in the secondary market. However, by 2007 and 2008, all of the homes ended up in foreclosure as investors realized the actual value of the collateral was 80% less than the amount borrowed for each property.
"The conduct charged in the indictment is a prime example of the type of corrupt mortgage lending practices that preceded the bursting of the real estate bubble, the loss of faith in securitized mortgage obligations, and the financial collapse of 2007 and 2008," says U.S. Attorney for the Eastern District of New York Loretta Lynch in a press release.
"The defendants cooked up a sophisticated scheme that defrauded lenders and then fed toxic debt to the investigating public at large in the secondary mortgage market."
All five defendants face charges of conspiracy to commit bank fraud involving mortgages.
Tracey Gaffey, the federal attorney representing Wider, could not be reached for comment.