Sales Manager Of Buy-A-Home Real Estate Brokerage Sentenced In Manhattan Federal Court To 24 Months In Prison For Participating In Multi-Million Dollar Mortgage Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ERIN DAVIS, former sales manager for the now defunct Buy-A-Home real estate brokerage business, was sentenced today in Manhattan federal court to 24 months in prison for participating in a multi-million dollar mortgage fraud scheme. DAVIS and Buy-A-Home’s owner, Mitchell Cohen, were indicted in July 2012. DAVIS pled guilty in January 2013 to one count of conspiracy to commit mail, wire and bank fraud, and was sentenced today before U.S. District Judge Denise L. Cote.
Manhattan U.S. Attorney Preet Bharara stated: “At the ground level of the mortgage crisis were people like Erin Davis, a top manager at Buy-A-Home, who orchestrated falsehoods and moved money around to generate millions of dollars of fraudulently obtained mortgages. This Office remains committed to using every legal means available to hold to account those who helped contribute to the home mortgage crisis and to FHA’s dire financial straits.”
According to the Indictment and statements made during court proceedings:
From 2007 through 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 requirements regarding his or her creditworthiness and ability to make mortgage payments. No undisclosed payments could be made or promised in connection with a residential mortgage transaction. Additionally, certain private lenders were authorized to make commitments for the provision of FHA mortgage insurance on behalf of HUD. 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, DAVIS was a sales manager for a real estate brokerage business in Queens, New York known, at various times, as Buy-a-Home, LLC and First Home Brokerage, LLC (“Buy-a-Home”). During that time period, DAVIS and 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. DAVIS, Cohen and others at Buy-a-Home recruited unsophisticated buyers of modest means and induced them into purchasing the same homes at inflated prices. To insure that the deals for these properties would go through, DAVIS, 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, DAVIS directed Buy-a-Home employees to pay off borrowers’ debts, often with cash funneled through bank accounts of borrowers’ relatives, in order to make the borrowers appear more creditworthy and to make it seem that their debts had been paid by an appropriate source; 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; prepared false gift affidavits to make it seem that the borrowers’ debts had lawfully been paid off, 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 advised borrowers to make other false statements on loan applications submitted to HUD. In so doing, DAVIS 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 they and Buy-a-Home could profit from the deals.
Through this scheme, DAVIS, Cohen and others defrauded HUD into issuing, and banks into purchasing, over $7.5 million 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 over $1.5 million in insurance payments.
In addition to the prison term, Judge Cote sentenced DAVIS, 44, of Yonkers, New York, to three years of supervised release. DAVIS was also ordered to forfeit $2,416,597, and to pay $117,992.19 in restitution to HUD-FHA. She will surrender on July 5, 2013, at 2 p.m.
On April 26, 2013, Judge Cote sentenced DAVIS’s co-defendant, Mitchell Cohen, to 70 months in prison. Cohen was also ordered to forfeit $7,515,966, and to pay $1,574,259.43 in restitution to HUD-FHA. He will surrender on June 28, 2013, at 2:00 p.m. COHEN also settled a related civil case. The civil judgment against Cohen consists of $2.2 million in damages and $500,000 in penalties, and is the fifth and final settlement in the civil action. In four prior settlements entered in 2011 and 2012, the Government recovered $1.55 million in damages and penalties from the lender and the appraisers. The lender, the lender’s principals and key employees, and the appraisers all agreed to be barred from all HUD programs either permanently or for a term of up to 10 years.
Mr. 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 Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
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 case.