M & T Bank Subject of Whistle Blower Lawsuit; Bank Accused of Defrauding Government Out of Millions From Forged Mortgages
|July 10, 2007|
NEW YORK, /PRNewswire/ -- Did M & T Bank defraud the government out of millions of Housing and Urban Development dollars? That is the question in a whistle blower lawsuit brought against the upstate New York-based bank in the U.S. District Court--Eastern District Court of N.Y. (Civil Action No. CV-05-2498).
The whistle blower suit stems from a case involving more than 50 mortgages owned by M & T on properties in Manhattan and Brooklyn that were fraudulently secured through HUD's 203K program for non-profits. A new admission by M & T's lawyer reveals there are nearly 400 fraudulent mortgages worth a half-billion dollars.
Indeed, on Friday night, June 29, 2007, Todd Marcus, the attorney for M & T, admitted in a letter to the court that his client never made him aware of a secretive deal between the bank and HUD, in which HUD agreed to pay off not just these 50 fraudulent mortgages, but an astonishing total of 374 fraudulent mortgages worth some $500 million! Marcus previously represented to the court that M & T had no knowledge of any fraud in the origination of any of these loans. The deal between M & T was reached six years ago, according to a letter dated January 11, 2001. Although his law partner attended the meeting at which the deal was reached, Marcus told the court on Friday that he was not aware of the agreement or even the letter's existence until April of this year!
The 50 mortgages at the center of the whistle-blower lawsuit date back to 1998 and a non-profit called St. Stephens Baptist Church, which is based in California. Through two questionable real estate brokers in N.Y., St. Stephens took ownership of 13 vacant wrecked buildings in those two boroughs with basically no money down. The brokers then put huge ($400,000) mortgages on the buildings, even though they were worth less than $50,000.
The mortgages were sold to M & T. To qualify for the HUD program, the bank was required to buy title policies, which first meant a title search on the buildings had to be done. The title company, Stewart Title Insurance Corp., insured the titles, even though it was aware that St. Stephens did not have the funds to pay off the hugely inflated mortgages. In fact, St. Stephens didn't even know fully about the mortgages because the two brokers were handling all the details.
Compounding matters, the two brokers then bought 43 more pieces of property through two non-profits - St. Stephens Community Development Corp. and St. Stephens Bible College Real Estate Management Corp. - that they themselves established using and signing St. Stephens Baptist Church's name, without the knowledge of or approval of the appropriate people at St. Stephens. Again, the mortgages were bought by M & T Bank, with title policies from Stewart Insurance. And, since St. Stephens didn't know about these new properties, they, like the others, went into foreclosure.
As a result, the St. Stephens people were now on the hook for millions of dollars in mortgages, even though they were forged and fraudulently obtained. In order to try to rectify the situation, St. Stephens engaged a New York law firm, which attempted to settle the matter. An agreement was reached, but it fell apart. The law firm then tried to work out another deal with M & T to rehabilitate the buildings using the guaranteed HUD money so that the buildings could be sold to pay off the mortgages. That deal also collapsed.
Ironically, Community Development and Bible College - the two non-profits fraudulently established to buy the additional 43 properties - were not even qualified for HUD mortgage insurance. Moreover, M & T Bank Vice President Richard Jachimiak, in his notices of claim to HUD, used the authorization number of St. Stephens Baptist Church - which is not even affiliated with Community Development and Bible College and whose Board of Directors never approved usage of its authorization number.
Despite this, and despite the fact that it has been proved in court that the mortgages were forged, M & T still collected about $25 million in HUD money to make up for the deficiencies brought about by the foreclosures. By right, the money should have come from Stewart Title Insurance Corp.
As a result, the whistle blower lawsuit is being brought against M & T Mortgage Corp., a subsidiary of M & T Banking Corp., by Burton N. Pugach, Lew Marcus, and Michael Blanchard, as managing agents for St. Stephens. Peter S. Gordon is the attorney for the plaintiffs.
"Last Friday's admission to the court by M & T attorney Todd Marcus concerning these 50 fraudulent mortgages, as well as the 324 other ones, not only propels the whistle-blower lawsuit forward," Gordon said, "but could also result in a number of criminal indictments."