“Mitchell Cohen was a tornado of mortgage fraud, and he left a trail of destruction in his wake – borrowers who could ill-afford the homes he pushed them to buy, banks that were saddled with the bad loans, and taxpayers whose tax dollars paid the insurance claims that had to be paid when borrowers defaulted.” stated U.S. Attorney Bharara.
The owner of the now defunct Buy-A-Home real estate brokerage business, pleaded guilty today to one count of conspiracy to commit wire, bank and mail fraud in connection with a multimillion-dollar mortgage fraud scheme, announced U.S. Attorney for the Southern District of New York Preet Bharara.
Michael Cohen also pleaded guilty to one count of perjury in connection with statements he made in a contempt proceeding related to the December 2010 civil fraud lawsuit filed against him by this office. Cohen pleaded guilty before U.S. Magistrate Judge Ronald L. Ellis this afternoon and is scheduled to be sentenced on April 26, 2013 by U.S. District Judge Denise L. Cote.
Cohen also thumbed his nose at the legal process by defying a judge’s order and then lying about it under oath. With his plea today, Cohen is owning up to his crimes,” stated U.S. Attorney Bharara.
According to the Indictment and statements made in public proceedings in Manhattan federal court:
Cohen’s Mortgage Fraud Scheme
During the period charged in the Indictment, 2007-2010, the U.S. Department of Housing and Urban Development’s Federal Housing Administration (HUD-FHA) provided mortgage insurance to borrowers seeking residential mortgages. Unlike conventional loans, FHA-insured loans required little cash investment from borrowers and were more flexible in income and payment ratio requirements.
To qualify for FHA mortgage insurance, a potential borrower had to meet HUD’s requirements regarding creditworthiness and ability to make mortgage payments. No undisclosed payments could be made or promised by third parties on behalf of the borrower in connection with a residential mortgage transaction. At all relevant times, certain private lenders were authorized to make commitments on behalf of HUD for the provision of FHA mortgage insurance.
They did so through the execution and ultimate submission to HUD of various mortgage documents, forms, and supporting documentation. Because FHA-backed mortgages were valuable commodities, lenders typically sold them to banks that pooled them and then resold them to institutional investors.
From April 2007 through October 2010, Mitchell Cohen operated a real estate brokerage business in Queens, N.Y. known, at various times, as Buy-a-Home, LLC and First Home Brokerage, LLC (Buy-a-Home). Buy-a-Home employed several sales managers, as well as a number of sales agents who recruited clients who were usually first-time buyers to purchase homes. Cohen and Buy-a-Home employees facilitated the sales of the homes by preparing documentation to secure FHA-insured loans to fund the borrowers’ purchases.
During that time period, Cohen engaged in a widespread conspiracy to defraud HUD into issuing FHA mortgage insurance and to defraud banks into purchasing the FHA-backed mortgages issued to Buy-a-Home’s clients in order to earn substantial profits.
Through entities he controlled, Cohen bought, or promised sellers he would buy, homes at one price, and then he and others at Buy-a-Home recruited unsophisticated buyers of modest means and induced them into purchasing the same homes at inflated prices, which were typically $100,000 higher than the original sale price.
To insure that the deals for these properties would go through, Cohen and others schemed to make the Buy-a-Home clients – who did not and could not qualify to receive FHA mortgage insurance – seem more creditworthy. In furtherance of this scheme:
• Cohen directed Buy-a-Home employees to pay off borrowers’ debts, often with cash funneled through bank accounts belonging to the borrowers’ relatives, in order to make them appear more creditworthy and to make it seem that their debts had been paid by an appropriate source;
• Cohen directed Buy-a-Home employees to provide cash to borrowers so that they could obtain certified checks falsely showing that they had sufficient funds to close;
• Cohen directed borrowers’ relatives to sign false gift affidavits to make it seem that the borrowers’ debts had lawfully been paid, or that the borrowers’ funds for closing had been appropriately provided by relatives, when in fact they had unlawfully paid off the debts themselves or through Buy-a-Home; and
• Cohen advised borrowers to make other false statements on loan applications submitted to HUD.
In so doing, Cohen concealed the borrowers’ true financial condition from HUD and the banks that subsequently bought the FHA-backed mortgages, all in an effort to insure that Cohen and Buy-a-Home could profit from the deals. Cohen also made mortgage payments on behalf of certain borrowers to further conceal their financial condition and to prevent banks from enforcing their right to sell loans back to the lenders that first provided the borrowers with mortgages.
Through this scheme, Cohen defrauded HUD into issuing, and banks into purchasing, millions of dollars in fraudulent loans. Furthermore, because the FHA insurance was based on false statements made to HUD, and the borrowers could not really afford their mortgages, many of the homes went into foreclosure proceedings forcing HUD to pay out at least $1 million in insurance payments.
In December 2010, the Civil Frauds Unit of the U.S. Attorney’s Office for the Southern District of New York filed a complaint against Cohen and others alleging fraud at Buy-a-Home.
On Dec. 29, 2010, the District Judge presiding over the civil action entered a preliminary injunction barring Cohen from participating in real estate sales involving HUD-insured mortgages and any advertising, marketing, or solicitation of business involving the same.
Subsequently, in October 2011, the government moved for a finding of civil contempt against Cohen, alleging that he willfully violated the preliminary injunction by re-establishing Buy-a-
Home under a new name – Y-Rent New York, LLC – which was nominally owned by Cohen’s wife and another individual, but was in fact operated by Cohen.
In connection with his opposition to the contempt motion, Cohen filed a declaration on Nov. 11, 2011, in which he stated, under penalty of perjury, that he was not involved with Y Rent, did not train Y Rent’s salespeople, did not take certain types of business calls, and did not speak to prospective borrowers. As Cohen admitted at today’s plea, those statements were false.
Cohen, 54, of Old Westbury, N.Y. pleaded guilty to one count of conspiracy to commit wire, bank and mail fraud, which carries a maximum penalty of 30 years in prison, and one count of perjury, which carries a maximum penalty of five years in prison.
Charges against Cohen’s co-defendant, Erin Davis, remain pending. The charges contained in the Indictment against her are merely allegations, and she is presumed innocent unless and until proven guilty. U.S. Attorney Bharara praised HUD-OIG and FHFA-OIG for their outstanding work in the investigation.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
This matter is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Janis Echenberg and Nicole Friedlander are in charge of the criminal case.
Every part of the mortgage lending process presents another window of opportunity for unscrupulous fraudsters to come in contact with loan originators, builders, real estate agents, borrowers, processors, underwriters, appraisers, wholesale lender account reps, and title closers. Each one of these positions or areas needed to get a mortgage leaves an opportunity for fraud!
It’s important to note that institutions don’t commit fraud, lenders don’t commit fraud, and companies don’t commit fraud – people commit fraud.
Michael S. Richardson
NMLS ID# 216873
Author of “An American Epidemic, Mortgage Fraud… a Serious Business