Hedge fund settles its portion of a New York predatory lending case

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New York State regulators entered into a settlement with a hedge fund in a case of alleged unlicensed and predatory mortgage lending activity by Vision Property Management.

Atalaya Capital Management agreed to pay $2.4 million in consumer restitution, a civil penalty of $250,000 and additional relief of $123,800, as well as cooperate with the New York attorney general and Department of Financial Services in their lawsuit against Vision, its affiliates and Vision CEO Alex Szkaradek that was filed on Aug. 1.

"Atalaya neither admits nor denies the findings," the agreement said. Atalaya began providing financing to Vision in 2012; the combination was involved in 110 transactions in New York. It stopped providing financing to Vision in January 2017, following media reports of properties associated with Vision being in deplorable conditions, the settlement agreement said.

"Atalaya is an investment management firm — it invests capital on behalf of itself and groups of investors in other companies," said a statement from Sean Hecker, counsel to Atalaya Capital Management and a partner at Kaplan Hecker & Fink. "It does diligence about those companies, and gets and follows legal advice, before investing. But it doesn't operate the businesses in which it invests. That is true of all of Atalaya's investments, including in Vision Property Management.

"As the settlement acknowledges, Atalaya, which was a capital provider to subsidiaries of Vision Property Management, responded immediately when it became clear that questions surfaced about Vision's business practices. As it does in all matters, Atalaya remains dedicated to ensuring that its business is conducted, in all respects, with transparency and integrity."

Vision's business model provides seller financing to buyers of the distressed and foreclosed properties it purchased, the legal filing said. It noted that many of those properties had structural damage that was not fixed by Vision prior to entering into those agreements.

Since December 2011, any entity providing a minimum of three seller financed loans in New York needs to be licensed as a mortgage banker.

According to the allegations, until 2013, Vision still used the seller finance model in New York. It then switched to a lease with an option to purchase model, but apparently ran afoul of regulators in 2018, and switched back to a variation of the seller finance model.

A real estate investment trust that Atalaya controls still holds the title to two properties. As part of the settlement, those are being turned over to their residents.

Atalaya also agreed to provide consumer restitution of $20,000 for each of the remaining 108 transactions.

"This settlement will help put an end to Vision's illegal and predatory operations, which were facilitated by investments from Atalaya, and provides a measure of restitution to New York consumers who were left holding the bag with further debt, uninhabitable properties and broken dreams," said DFS Superintendent Linda Lacewell in a press release. "DFS will continue to use all of the tools at its disposal to protect New Yorkers from predatory companies seeking to take advantage of them."

Atalaya allegedly knew the terms of Vision's lease with an option to purchase agreements and how they were priced, accounted for and represented to consumers, and knew or should have known Vision was not licensed as a mortgage lender and not giving required disclosures to consumers, the press release said.

"Not only are we ensuring that Atalaya will no longer be able to invest in or assist Vision Property Management's illegal, deceptive, or abusive schemes that targeted New Yorkers, but, today, we are finally providing their innocent victims with some semblance of restitution," New York Attorney General Letitia James said in the press release. "Anyone who preys on innocent, hard-working New Yorkers is on notice that my office will hold them accountable and make them pay the price."

In the original suit against Vision, regulators alleged it made about 150 loans that qualified as subprime home loans under New York law. And most of those also qualified as high-cost loans under New York law, which have additional restrictions on lenders. Vision's data indicated that over 40% of the seller-financing agreements it signed with New York consumers ended in an eviction or surrender of the property, the DFS/AG press release on the initial suit noted.

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Enforcement Mortgage fraud State regulators Distressed REO Foreclosures New York Attorney General New York