Remember before the financial crisis of In 2008, when anyone with a pulse could get a loan and some without a pulse could get one, when appraisers inflated values and cash back at closing was common? Three New York tri-state area investors jumped in their DeLauries and traveled back to 2007 because they had just committed to a creative financing scheme. cincinnati Multifamily Apartment complexes would shock the audacity of old-school scammers.
Inflated prices and forged documents
according to a Recent articles published by CoStarDepartment of Justice (DOJ) investigators uncovered a multi-year scheme that cost business brokerage JLL $18 million.
Investors Fredrick Schulman, 72, New York; Chaim “Eli” Puretz, 29, New Jersey; Moshe “Mark” Silber, 34, New York, acquired the Williamsburg property in March 2019 for $70 million Williamsburg of Cincinnati Apartments & Townhomes, which has 976 units, pleaded guilty to wire fraud after they obtained a $74.25 million loan.
Specifically, Silber, Schulman and other co-conspirators used stolen identities provided to JLL and Fannie Mae to represent buyers with larger purchase prices. The dual deadline is March 8, 2019.
JLL attributed the loan to an $18 million loss in its second-quarter earnings report. According to a recent article wall street journalthis fraudulent activity has led to a more rigorous application process and the need for independent verification by lenders seeking multifamily property loans, according to estimates in the latest annual report from U.S. government-backed Freddie Mac and Fannie Mae the borrower’s financial information.
Assessed value collapse
Interestingly, when the loan was issued in 2019, the Cincinnati property was appraised at $99 million, allowing for the higher sales price. However, whether it’s poor management, adjustable rate mortgages or tenant churn, it is reassessed In March 2024, the company paid $34 million, which it was more than 90 days in arrears, according to CoStar.
“The receiver has appointedwe intend to stabilize the property prior to asset sale, including improving some occupancy rates sold” said JLL Chief Financial Officer Karen Brennan on the company’s earnings call.
This isn’t the only scam scammers pull off
The Justice Department also revealed that the three fraudsters also pleaded guilty to separate fraud charges in which they defrauded lenders on another loan originated by JPMorgan Chase. commercial Property located in Troy, MI. Silber, Schulman and Puretz acquired Troy Technology Park in September 2020 for $42.7 million. The DOJ alleges that to support an inflated purchase price of $70 million, the defendants submitted a fraudulent letter of intent to lenders and appraisers to purchase the property from another party for $68.8 million.
According to the July bondholder monthly report for the bond deal, JPMorgan provided a $45 million loan for the Troy Technology Park loan, which “was transferred to special servicing in December due to mortgage fraud and the December 2023 Payment is still not due”. the property foreclosed May 2024.
Silber, Schulman and Puretz are scheduled to be sentenced on December 3, 2024, and each will receive up to five years in prison, according to the U.S. Department of Justice.
Mortgage fraud increases
The number of fraudulent mortgage schemes has increased since 2022, when rising interest rates caused commercial real estate values to decline. The Justice Department stepped up its crackdown, resulting in borrowers being required to submit rent receipts and increased scrutiny of financial documents.
Falsified income statements and falsely overpriced property sales are two of the most common loan fraud documents. Fannie Mae has been methodically blocking mortgage brokers such as Meridian Capital Group after alleging they engaged in inappropriate behavior to obtain large loans.
final thoughts
Ohio and Michigan’s bold plans show they didn’t come out of nowhere. They inferred that other “investors” had tried similar practices, thus encouraging Silber, Schulman, and Pretz to commit the fraud.
Prior to 2008, falsification of financial documents was common in real estate transactions, with many such transactions only coming to light when those involved, particularly banks, began to lose money. But as long as everyone is making money, many fraudulent transactions will go undetected.
The craziness behind the Ohio and Michigan deals was that JLL and JPMorgan lost millions. How Silber, Schulman and Preetz expected to get away with it is puzzling — but presumably they knew someone had successfully done something similar in the past.
Ultimately, succeeding in real estate does not require the technical and analytical thinking required in other high-income industries such as technology. This is a numbers game. There are more than enough legal ways for investors to make money without breaking the law, which is why when cases like these come to light, it’s hard not to be shocked by the stupidity of the fraudsters.
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