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Monday, August 16, 2010

FBI Arrests Police Commissioner, Slumlord, Rabbi

Federal agents charged 15 people—some of them prominent local figures—with undertaking massive mortgage fraud and moved to take control of 51 blighted New Haven properties Thursday, as the government’s response to the aftermath of the foreclosure crisis took a new legal turn.

The feds’ charges were laid out in eye-popping legal complaints filed in three separate alleged schemes to buy and inflate values on distressed properties, then stiff government and private lenders and pocket the cash.

The properties in question fall on some of the streets most battered by the current foreclosure crisis, like Starr Street in Newhallville and Fair Haven’s Lloyd Street.

Agents arrested 13 of the 15 alleged conspirators Thursday. Those accused of masterminding the various, apparently unconnected schemes include some local notables: Menachem Joseph Levitin, part of one of the city’s fastest-growing empires of slum rental properties; West Haven Police Commissioner Thomas Gallagher, an appraiser accused of inflating property values in these transactions; former New Haven State Rep. Morris Olmer, who allegedly arranged deals under the pretense of being a lawyer despite having turned in his legal license; and Rabbi David Avigdor, a New Haven attorney allegedly practicing with Olmer.

Gallagher, Olmer, and Avigdor each face up to 20 years in jail and $250,000 fines on charges of conspiracy to commit wire fraud and conspiracy to defraud the government with Federal Housing Administration (FHA)-insured mortgages.

Gallagher’s and Olmer’s alleged fraudulent practices were publicly known as far back as July 2007, when Olmer had his license suspended and this Independent article was published.

Olmer insisted in a conversation Thursday afternoon that the feds invented the case against him—and that any problems should fall on the shoulders of the sellers, not the buyers, of property under law. He said he had a legal right to conduct “notary closings” without a law license, and he contested the feds’ context of conversations secretly recorded by a cooperating witness.

“Everything I did was perfectly proper,” Olmer said.

Avigdor, who presides over Congregation Bikur Cholim Sheveth in Westville, is recovering from a stroke suffered on May 7. He and Olmer turned themselves in to authorities. They were arraigned in U.S. District Court in New Haven Thursday and released on $250,000 non-surety bonds.

Thomas MacMillan Photo
“I will prove my innocence, because I would never, ever do” what the government accuses him of doing, said Avigdor (pictured at an unrelated aldermanic hearing last year) Thursday. He declined further comment.

So did Levitin, reached by phone Thursday. “You’ll have to talk to my lawyer, Willie Dow,” Levitin said.

Remarked Dow, “History shows that charges are easily made but not easily proven.”

Police Commissioner Gallagher has served as grand marshal of New Haven’s St. Patrick’s Day Parade and won West Haven’s Irishman of the Year award, noted his attorney, Hugh Keefe. “Tom is highly reputed in this area. He’s very prominent in the Irish-American community,” Keefe said, adding that Gallagher has never previously been accused of criminal conduct.

The government complaints unsealed Thursday (read two of them here and here) offer a look at how alleged scammers profited from New Haven’s foreclosure crisis while leaving a trail of further blight behind them. But the information released so far by the government leaves open other questions about how the alleged scammers were able to obtain so much property, and whether distant lenders or their representatives were merely victims or also at least convenient unwitting contributors to, or beneficiaries, of the scams.

The New Haven sweeps occurred on the same day that U.S. Attorney General Eric Holder announced the arrests of 1,215 people nationwide since March on mortgage-fraud-related charges in an operation called “Operation Stolen Dreams.”

The Connecticut arrests, centered on transactions in New Haven and in New London, weren’t directly related to that national operation. A Connecticut Mortgage Fraud Task Force had already been investigating these cases since last July. The task force includes the state and regional offices of the U.S. Attorney General, FBI, federal Department of Housing and Urban Development, Inspector General, and U.S. Postal Inspection Service. Directors of those agencies unveiled the latest arrests at a Thursday afternoon press conference in the U.S. Attorney’s Office on the 11th floor of the 157 Church St. office tower across from the New Haven Green.

Their investigation is ongoing, with “no end to what we’re going to find” in “many” other active cases, said Connecticut U.S. Attorney David B. Fein.

How One Scheme Allegedly Worked
Thursday’s announcements involved three separate, apparently unrelated schemes bringing together lawyers, real estate brokers, appraisers, and “straw buyers” enlisted to pretend to buy properties at inflated prices.

One alleged scheme was centered on the New London area. The other two, New Haven.

One of the New Haven schemes allegedly fueled the rise of a slumlording empire run by Menachem Levitin, who also goes by the name Yosef or Joseph Levitin, and operates and works with a host of limited liability corporations including Shemesh LLC, Solo Investments LLC, and Beit Aviv LLC.

The FBI arrested Levitin last month (as the Advocate’s Betsy Yagla reported) but waited until Thursday to release its complaint.

Levitin started showing up in poor and transitional neighborhoods throughout town a few years ago, buying properties in foreclosure or facing foreclosure.

Neighbors wondered how he found out about these properties and arranged their purchase with distant lenders, before the properties were listed or lenders (who had often purchased subprime or other bad loans from banks or brokers listed in public documents) identified. Meanwhile, Levitin’s management companies earned the ire of neighbors angry over rundown conditions dragging down their blocks. Click here to read a story about one such area, Batter Terrace, where neighborhoods organizer confronted Levitin on the street one day in 2008, and Levitin promised to do better.

According to the federal complaint released Thursday, Levitin and his partners got the money to buy 51 New Haven properties like Batter Terrace by running a scam on 40 different properties.

The group actually ran two alleged scams, according to the feds: “seller assistance scams” and “short sale scams.”

Here’s how the former allegedly worked: Levitin found owners eager to unload rundown properties. He allegedly acted as a middleman: agreeing on a sales price; finding a buyer; arranging for the appraisal. According to the complaint, he got an appraiser to prepare an appraisal document for $50,000 to $100,000 more than the value of the house. He allegedly had a sale document drawn up to reflect the higher, pretend price. The fraudulent documents were used to obtain mortgages at the inflated price. The alleged schemers allegedly pocketed the difference between the real sales price and the inflated price.

Meanwhile, the new owner wouldn’t pay the mortgage. The lender would foreclose; it wouldn’t be able to sell the house for the inflated value of the mortgage.

That problem—a house with a mortgage higher than its value—has plagued properties throughout New Haven neighborhoods, leaving them empty and deteriorating. That situation opened the door for another scam the Levitin crew allegedly undertook—the short sales: Levitin would allegedly step in and offer to take the property off the lender’s hands for less money than the mortgage was worth. The lender, wishing to cut its losses, would agree, unaware that Levitin had allegedly orchestrated the whole deal.

The schemers also allegedly used false leases with pretend tenants to obtain the inflated mortgages. Levitin is charged with rounding up the pretend tenants from “two paid-for database services that derive their information from credit reports.” Investigators reported that the supposed tenants never paid electric bills, despite leases saying they would, or ever lived at the addresses.

Much of the case is built around secret recordings and other information provided by an unidentified undercover “cooperating witness” who allegedly bought properties through Levitin.

The U.S. Attorney has moved to take control through foreclosure of the 51 other properties Levitin and co. allegedly bought with the proceeds of the 40 questioned sales properties like the one on Batter Terrace. Those properties have been the subject of repeated complaints from neighbors and tenants.

“You Don’t Need Them Investigating You”
The separate alleged scheme involving the police commissioner, the rabbi, and the unlicensed lawyer involved $10 million of loans on 35 New Haven properties. Officials estimated that lenders were cheated of $3 to $4 million of that money.

According to the criminal complaint released Thursday, the scheme worked like this:

The alleged mastermind, one Syed A. Babar, would pay “straw buyers” up to $20,000 to sign a contract to pretend to buy a house. The contract would put the price at far higher than the real price being paid. Babar would help a complicit broker prepare a mortgage application for the pretend buyer based on fake bank records, earning statements, and other documents claiming the straw buyer—who’d never seen the property—would in fact buy it and live there.

Gallagher, the West Haven appraiser and police commissioner with a longstanding prominent local practice, would allegedly prepare the fake, inflated appraisal to support the pretend sales price and the inflated mortgage. He allegedly received $8,000 cut on a typical such transaction, even though its stated fee is $375.

Olmer, allegedly pretending he was still licensed to practice law, would handle the closing. David Avigdor, an attorney sharing an office with Olmer in New Haven, is alleged to have signed the documents and distribute the proceeds of the sales to co-conspirators.

“This was done in a number of ways, including through the bank account of a sham construction company for fictitious renovations,” according to the criminal complaint. As with the Levitin case, the complaint attributes some information to an unidentified “cooperating witness” involved in the alleged transactions and secretly recording conversations.

In one such conversation, the witness allegedly asked Babar what the complicit broker thought a particular fraudulent document. Babar allegedly replied that the broker “just wants to ‘make money,’ and that he ‘don’t give a shit about FHA because it’s a government loan.”

In another purported taped conversation, the witness and Babar discuss a rare development: a bank noticed something funny about one of the documents: “Babar state[d] that the “bank got clever nowadays.’ Babar then wonder[ed] aloud, ‘How the f_ck did they [the bank] notice it?’ [The cooperating witness] later asked, ‘Do you think they’re going to verify stuff now, with like the bank statement and things like that?’ Babar replied, ‘no.’” Babar also told the witness to pretend to work in “human resources” for a fake company called “Global Home Painting” under a fake name to verify one participant’s alleged employment.

In other alleged taped conversation, former attorney Olmer, allegedly handling a closing, told the witness to avoid responding to questions from a lender about bank statements. “You don’t need them [the lender] investigating you guys as to what’s been happening,” he allegedly advised.

“Let me tell you something,” Olmer responded in an interview later Thursday. “Those conversations were after everything had been done, not during the time these things were going on.

“I’m pretty sure I know who he’s talking about. The guy was talking to me and asking me just as a friend, because I can’t give him legal advice what to do. They were after this one guy because they had caught up to him and he hadn’t paid anything on eight deals. I think I did one of the deals for him back in ‘07.”

Olmer further argued that it’s up to the seller, not the buyer, to properly disclose payments involved in a real estate transaction. “Most of the rules with respect to borrowing money had to do with protecting the borrower and the bank from terrible actions by the brokers to screw the borrowers,” he said.

He added that at a closing, it’s OK to break up the payments into separate checks, as long as the full price is genuinely paid, which he claimed did happen in these transactions.

“Look at it this way,” Olmer said. “If the seller is supposed to get $50,000, and the seller says at the time of the closing says, ‘Listen give me $45,000 and give $5,000 to my brother-in-law, that’s perfectly all right, as long as the seller gets the full amount he’s supposed to get.”

Olmer said he openly handled the closings as a notary public, not as a lawyer.

“There’s two ways to do a closing in Connecticut,” he said. “One, you can do a closing as a lawyer. Two, you can do a closing as a notary public. I run a business called Docs/Notary LLC. I can’t give out title insurance. But I can do what are called notary closings.”

The government complaint listed 10 transactions in which attorney Avigdor allegedly prepared documents claiming to have distributed between $43,625 and $89,228 to a fictitious company called Sheda Telle Construction LLC.

Olmer said he’s convinced the construction company is real and received the money.

“How the hell can you send money to a company if it’s not a legitimate company?” he asked. “I was positive it was a real construction company. The guys told me that. I knew Babar for years. I’ve done work for him before. He came to me a year or two ago. He said he had a new idea because business was so bad. He was going to do home repairs. Buy properties that were downtrodden, that were in bad condition, fix them up and sell them. That was his whole idea. That was the apparent purpose. That’s what he said.”

Paul Bass Photo
At Thursday’s press conference, U.S. Attorney Fein (pictured with Connecticut FBI chief Kimberly Mertz) described an example of an allegedly fraudulent sale in Fair Haven, at 211 Lloyd St. The straw buyer never even received the keys to the house she was allegedly buying and moving in to, Fein claimed. Rather, she received “$10,000 in a black plastic trash bag.”

At the press conference, Fein declined to elaborate beyond what was in the detailed documents his office released. He wouldn’t say, for instance, if the investigation would look at whether lenders were more than “victims” in these transactions. Nor would he say how it was that Levitin was able to find out about which often-remote lenders to make deals with, when even sophisticated would-be purchasers had no idea whom to contact, or even that a house was being sold.

He did make it clear that lots of more information would emerge as the investigation continues into the latest recurring wave of real estate speculation and alleged fraud in struggling city neighborhoods.

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