Jury Finds Allied Home Mortgage Entities And CEO Jim C. Hodge Liable For Civil Mortgage Fraud, Awards The United States Over $92 Million In Damages

 

Allied Home Mortgage and CEO Face Statutory Trebling of Damages and Penalties for Fraudulent Conduct

   Preet Bharara, the United States Attorney for the Southern District of New York, Kenneth Magidson, the United States Attorney for the Southern District of Texas, Julián Castro, Secretary of the United States Department of Housing and Urban Development (“HUD”), and David A. Montoya, Inspector General of HUD (“HUD-OIG”), announced today that a unanimous jury has found the entities formerly known as ALLIED HOME MORTGAGE CAPITAL CORPORATION (“ALLIED CAPITAL”) and ALLIED HOME MORTGAGE CORPORATION (“ALLIED CORPORATION”) (collectively, “ALLIED”), as well as ALLIED’s president and chief executive officer JIM C. HODGE (“HODGE”), liable for violating the False Claims Act (“FCA”) and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) in connection with over a decade of fraudulent misconduct related to ALLIED’s participation in the Federal Housing Administration (“FHA”) mortgage insurance program.  The jury awarded the United States a total of $92,982,775 in damages, including $7,370,132 against HODGE.  Pursuant to the FCA, damages in this case are subject to mandatory trebling.  In addition, the FCA provides for a penalty of $5,500 to $11,000 for each violation.  Separately, FIRREA provides for a penalty for each statutory violation.  The Court will determine the amount of the penalties at a later date.  The verdict was returned yesterday following a five-week trial in Houston before United States District Judge George C. Hanks, Jr., of the United States District Court for the Southern District of Texas.  

Manhattan U.S. Attorney Preet Bharara said:  “For years, Jim Hodge and Allied lied to HUD in order to fraudulently reap profits from the FHA mortgage insurance program.  After a month-long public trial where all their misconduct was exposed, a jury has held Mr. Hodge and Allied responsible for their lies and has made them pay for losses the United States suffered on loans that would never have been insured by HUD absent their lies.  This case represents yet another recovery by the United States – this time after a trial – for fraud perpetrated against HUD by participants in the Direct Endorsement Lender program.”

Houston U.S. Attorney Kenneth Magidson said:  “The excellent coordination between personnel from our two U.S. Attorney’s Offices and with HUD investigators has resulted in a tremendous win for the government.  Working together, we ensured a successful outcome following a lengthy trial and investigation against Allied and its CEO.  We will continue to apply our resources whenever and wherever we can to ensure those that perpetuate such egregious fraud against the United States are held accountable for their actions.”

HUD Inspector General David A. Montoya said:  “The heart of our mission is to weed out actors such as these that are intent on defrauding federal housing programs.  This should serve as a notice to all those determined to engage in illegal schemes such as these that they are not beyond the reach of the federal law enforcement community.”

According to the evidence presented at trial:

FHA mortgage insurance makes home ownership possible for millions of American families by protecting lenders against mortgage defaults.  FHA mortgage insurance also makes mortgage loans valuable in the resale market.  To protect the continued availability of FHA mortgage insurance funds, HUD must accurately assess the risk of default on the loans it insures.  To accomplish this task, HUD relies on assurances by lenders that they, and the loans they submit for insurance, comply with program requirements. 

As a HUD-approved loan correspondent, ALLIED CAPITAL originated FHA-insured mortgage loans.  ALLIED CAPITAL was required to seek HUD approval for each branch office from which it originated FHA loans.  Instead of complying with this requirement, however, ALLIED CAPITAL, with HODGE’s knowledge and approval, operated over one hundred “shadow” branch offices that originated FHA loans without HUD authorization.  As part of its scheme to deceive HUD, ALLIED CAPITAL submitted loans originated by those branches to HUD using the ID numbers of approved branches.  ALLIED CAPITAL’s undisclosed shadow branches were not subject to HUD oversight and their default rates were disguised by the default rates of branches whose IDs they were using.  This fraudulent misconduct resulted in $7,370,132 in losses to HUD when certain of those loans defaulted. 

ALLIED CORPORATION, as a participant in HUD’s Direct Endorsement Lender program, underwrote FHA-insured mortgage loans.  For each FHA-insured mortgage loan, ALLIED CORPORATION was required to certify to HUD that the loan was underwritten according to HUD’s guidelines.  Those guidelines ensure that FHA-insured loans are made only to borrowers who can repay them, thereby seeking to avoid losses to HUD’s FHA insurance fund and foreclosures on borrowers’ homes.  ALLIED CORPORATION, however, recklessly underwrote and certified at least 1,192 loans for FHA insurance that were ineligible for insurance under HUD’s guidelines.  This fraudulent misconduct resulted in losses to HUD of $85,612,643 when those loans defaulted.

To compound matters, ALLIED and HODGE operated a dysfunctional quality control program and lied to HUD about it.  HUD requires lenders participating in its programs to timely perform quality control audits of their FHA loans to identify and correct systemic problems, including underwriting problems.  ALLIED, however, employed only a handful of quality control employees to review loans from as many as 600 branch offices.  Many of those employees were unqualified to audit FHA-insured loans.  In addition, HODGE personally directed his employees to falsify quality control reports to give the impression that required reviews had been performed, when in fact they had not.  When HUD auditors later asked for those quality control reports, ALLIED provided the falsified reports.  ALLIED and HODGE also falsely certified to HUD on an annual basis that ALLIED was in compliance with HUD’s quality control requirements.

The United States filed a complaint-in-intervention in this lawsuit in November 2011.  At that time, the action was pending as a qui tam whistleblower lawsuit in the United States District Court for the Southern District of New York.  In September 2012, the action was transferred to the United States District Court for the Southern District of Texas. 

Mr. Bharara and Mr. Magidson thanked HUD’s Office of General Counsel and HUD-OIG for their extraordinary assistance with this case.    

Bronx Jewish Community Council - Thanks for Making our Breakfast a Success

Honorees, from left to right: Dr. Molham Solomon, Dr. Lori Solomon,  Hon. Adolfo Carrion Jr., Lynn Levine, Fred Levine, Hon. John Barone,  and Sam Shalem. Thank you to everyone who attended the  Breakfast! For those who were unable to attend,  thank you for donating. We have raised  $90 thousand (and counting), making this  one of our most successful fundraisers ever.  We appreciate the support, and we look forward  to seeing you at next year's  Breakfast for Champions.  If you have any comments,  please feel free to contact us.  Visit our Website:  http://www.bjcconline.org/           and  Like us on Facebook

IDC CALLS FOR LETTER GRADING ON SCHOOL CAFETERIAS; RELEASES SCHOOL LUNCH FLUNKS: AN INVESTIGATION INTO THE DIRTIEST NEW YORK CITY PUBLIC SCHOOL CAFETERIAS

Independent Democratic Conference to Introduce Legislation to Create a Grading System for School Cafeterias.

Senators Jeff Klein (Bronx/Westchester), Diane Savino (Staten Island), Jesse Hamilton (Brooklyn), and Senator-elect Marisol Alcantara (Manhattan), joined by New York City School advocates, unveiled a stomach-turning investigative report, “School Lunch Flunks: An Investigation into the Dirtiest New York City Public School Cafeterias” that examined sanitary conditions in cafeterias across the city.

“When parents send their children to school they expect them to be in a safe, cleanly environment throughout the day, including during their lunch period. This report shows that many of the cafeterias in our city schools have racked up numerous health code violations, and that parents have no way of knowing about these violations. If parents can make decisions about the restaurants they frequent based on a letter grade, they should have the same knowledge about where their children eat every day,” said Senator Klein.

“As a mother I find it especially concerning that parents have no way of knowing the conditions that exist within their children’s school cafeterias. Our schools should be forthcoming with this information so that parents can feel comfortable knowing where their child is spending the day. I look forward to working with the IDC to ensure that our children are protected and that their parents know that their children are eating in a clean environment,” said Senator Alcantara.

“Over a million students across New York city depend on school cafeterias for breakfast and lunch every school day. This report on cafeterias is especially concerning because parents do not have a choice about where their children eat their school lunch. The restaurant grading system has been a great success in New York’s restaurants, forcing them to clean up their acts and the IDC will work to do the same for school cafeterias in the next session,” said Senator Savino.

“Secret inspections conducted by the city’s Department of Health aren’t posted for public consumption, while our students sometimes consume food in filthy  cafeterias. We must rid our schools of this lack of transparency for the health and well-being of our children. What we’ve seen since New York City implemented letter grading on restaurants is an astounding turnaround in cleanliness and we expect the same to happen in our schools,” said Senator Hamilton.

The investigation focused on data obtained from the New York City Department of Health and Mental Hygiene’s food safety inspection reports of public school cafeterias across New York City.

In the report, IDC analysts assigned letter grades for cafeterias based on the already established letter grading system that is used for restaurants. They found that nearly 15% of the 2,976 school cafeteria inspections would be graded a “B” or “C” in NYC Fiscal Year (FY) 2015-2016. In addition, 61 schools in FY 15-16 that were inspected more that once never earned a score that would have returned an “A” grade.

Among the violations reported, conditions that can lead to vermin infestations and evidence of mice were two of the five most common violations issued against school cafeterias.  In FY 15-16 inspectors gave out 442 mice related violations to 320 different school cafeterias, including an inspection at Sixth Avenue Elementary School in Manhattan where inspectors found 400 mice excreta in one inspection.

In addition, the second most common violation for vermin were filth flies.  Inspectors in FY 15-16 gave out 155 violations for flies to 136 schools.  In one visit to Franklin D. Roosevelt High School in Brooklyn inspectors found 130 flies present.

Also alarming was the number of violations under the classification of “pests,” which are given for conditions that are conducive to pest and vermin infestations, such as holes in walls, gaps between walls and ceilings, and accumulation of dried food waste behind equipment. In FY 15-16 inspectors issued 559 violations for pest conditions to 399 schools.  

The Independent Democratic Conference announced legislative solutions to be introduced next session that will require letter grading based on school cafeteria food safety inspections similar to those used in restaurants across New York City so that parents are aware of the conditions of cafeterias in their children’s schools.

Senator Diaz’s Statement about Shameful Leadership in Albany

Senator Reverend Ruben Diaz has released the following statement: 

  

“It is a shame to see how the Speaker of the Assembly Carl Heastie and Senate Leader John Flanagan have allowed Governor Andrew Cuomo to take control and make us all look like we are solely interested in giving ourselves a salary increase.  Going back to Albany now for a Special Session to increase our salary, makes us look like we are being forced by the Governor to agree to vote for whatever he wants just for our salary increase. It is shameful that our leaders would do this. It makes us look worse than we already are.” 

EDITOR'S NOTE:

State Senator Diaz Sr. has already made his intention known that he is running for the soon to be term limited position of the 18th City Council seat. The pay for a city council member was raised to $140,000 dollars, far greater than a state legislator's salary of $79,500.  

MAYOR DE BLASIO AND PUBLIC ADVOCATE JAMES ANNOUNCE CITY WITHHOLDING RENT SUBSIDIES FROM LANDLORDS OF TWO BUILDINGS TO FORCE REPAIR OF HUNDREDS OF VIOLATIONS

Threat of similar withholding resulted in repair of nearly 1,200 housing code violations in 10 other buildings, home to 1,000 tenants

   Mayor Bill de Blasio and Public Advocate Letitia James today announced the City is withholding rent payments for tenants on public assistance in two buildings where the landlords have failed to repair hundreds of violations. The landlords are Jay Weiss, at 541 West 150 Street in Manhattan, and Agron Berisha, at 20 West 190th Street in the Bronx.

In May and using the Spiegel law, the City threatened to withhold rent payments to twelve “Dirty Dozen” buildings with a combined total of 2,081 code violations, the most serious of which included the presence of mold, leaks, broken windows, and missing window guards. The City’s action has resulted in 1,194 of those violations being cleared since May in 10 of the 12 buildings. As a result, the more than 1,000 tenants are living in significantly improved buildings.  

“It’s simple, when you pay the rent, you should get a decent place to live. We are hitting unscrupulous landlords who refuse to repair their buildings where it hurts the most – their wallets,” said Mayor Bill de Blasio. “We will continue to use every tool at our disposal to force property owners to follow the law, to clear housing code violations, and to ensure that every tenant in New York City has a safe home that they can afford.”

“New York City will no longer bankroll landlords who force their tenants to live in dangerous and unsanitary conditions,” said Public Advocate Letitia James. “By withholding rental assistance payments to these landlords, we will ensure that tenants are protected from hazardous conditions. Over one thousand tenants are already living in drastically improved buildings due to our actions six months ago, and we will not stop until every New Yorker is living in a safe and decent home."

The 1962 Spiegel Law allows the Human Resources Administration (HRA) to withhold rent payments for tenants receiving public assistance if conditions in the building are considered “dangerous, hazardous or detrimental to life and health.” The law specifically prohibits landlords from evicting their tenants for rent withholdings by the City. All of the owners of the “Dirty Dozen” buildings, listed below, were on the Public Advocate’s Worst Landlord Watchlist. 

“By enforcing the Spiegel Law, we are sending a strong message to landlords who disregard the safety and health of their tenants that their actions will not be tolerated in our city,” said Department of Social Services Commissioner Steven Banks.  “If property owners refuse to repair the violations in their buildings after receiving sufficient notice to do so, we will not hesitate to use every possible legal resource available to us to protect their tenants.” 

“The Spiegel Act provides us with an additional tool to improve the conditions of the city’s most severely distressed properties and to protect our city’s tenants.  Many of the owners were quick to respond to our calls to improve conditions, and already we’ve seen violations reduced more than 75 percent in those buildings. HPD will continue to work with the Public Advocate and HRA to use all the available enforcement powers to ensure that landlords fulfill their responsibilities and properly maintain their buildings to keep New York families living in safe conditions,” said Housing Preservation and Development Commissioner Vicki Been. 

Last May, the eight owners of the “Dirty Dozen” buildings received a letter from HRA notifying them that the Spiegel Law was being invoked against them. They were directed to contact the Department of Housing Preservation and Development (HPD) within 15 days to request a re-inspection and Dismissal of Violations, which is an official confirmation that the conditions were corrected.

Six owners of 10 buildings have made substantial building-wide repairs since May, reducing the number of total violations in the buildings by 76 percent, from a combined total of 1,559 to 365. As a result, all tenants of the buildings, not just those on public assistance, are benefiting. The City will continue to monitor these buildings to ensure that the remaining violations are cleared.

Landlords Weiss and Berisha made some repairs but still left a substantial number of violations, including some of the most serious violations uncorrected. As a result, the City is stopping rent payments, totaling $4,710.42 a month, for the tenants receiving public assistance starting on December 1.

·         541 West 150th St. has a total of 155 outstanding violations, 5.9 violations per apartment, 59 of which are Class C, considered “immediately hazardous.”

·         20 West 190th St. has a total of 84 outstanding violations, 2.2 violations per apartment, 19 of which are Class C.

HPD’s Housing Litigation Division (HLD) has already taken legal action against the owners of these properties, and is considering filing comprehensive cases against them in New York City Housing Court. Additionally, HPD is considering the pursuit of a court appointed 7-A Administrator, a qualified third party administrator who manages residential properties and provides essential services through the 7A Program. 

Under the Spiegel Law, landlords cannot evict tenants when HRA withholds rent. The Legal Aid Society and Legal Services NYC, legal services organizations contracted by HRA to provide legal assistance for low-income tenants to stop tenant harassment and prevent unlawful evictions, will assist tenants if the landlords attempt to evict them. HRA contracts with these and other organizations as part of its $62 million investment in legal services programs for low-income tenants.

In addition, the Mayor’s Tenant Support Unit has gone door-to-door in the “Dirty Dozen” buildings multiple times, informing tenants’ about their rights and the actions the City is taking against their landlord. The Unit is working in collaboration with HPD and HRA to get tenants’ legal and repairs issues addressed, holding building owners accountable.

In addition to the 10 buildings where rent will not be withheld, the City successfully used the Spiegel Law with the landlords of two buildings in the Bronx in 2015. Both landlords resolved the violations in their buildings, and rent payments were ultimately not withheld. The law is a powerful enforcement tool, and one that had not been used for 20 years.  

The ten buildings where most violations were corrected and their landlords are listed below:

			Violations as of 5/19	Violations as of 11/30
Manhattan
133	Ft. George Avenue	Yecheskel Berman	123	17
514	West 211 Street	Maurice Sohaye, Robert Farhadian	167	49
Bronx
212	West Kingsbridge Rd	Bashkim Celaj	140	64
2320	Creston Avenue	Leze Gazivoda, Alex Gazivoda	138	41
410	East 173 Street	Ferdo Skrelja	139	2
2015	Creston Avenue	Ved Parkash	172	40
750	Grand Concourse	Ved Parkash	308	88
751	Gerard Avenue	Ved Parkash	196	28
315	East 196th Street	Ved Parkash	128	28
Queens
90-23	171 Street	Ved Parkash	48	8

Community Educational Forum 12/12/16 6:30 PM-8:30 PM at Bronx Library Center

Fordham Road BID - 12th Annual Sparkling the Heart of Fordham Holiday Event

Engel Cosponsors “Presidential Accountability Act”

   Congressman Eliot L. Engel, a senior member of the House Energy and Commerce Committee, has cosponsored H.R. 6340, the “Presidential Accountability Act,” which would extend conflict of interest provisions to the President and Vice President of the United States.

Federal conflict of interest law prohibits executive branch employees from engaging in government business in which they stand to gain profit. To avoid these conflicts and eliminate criminal liability, employees are allowed to place their assets in a qualified blind trust. However, as it currently stands, the President and Vice President are exempt from this law. H.R. 6340 would address these conflicts by extending a tailored version of the law that governs executive branch employees to the President and Vice President.

“In order to maintain the trust of the American people, it is imperative for the President and Vice President to have no business related conflicts of interest that may sway their decision making while in office,” Engel said. “Every President in the modern era has placed their assets in a blind-trust prior to taking office, yet they have done so of their own volition. If there are individuals at the White House who are legally bound to take steps in order to avoid a conflict of interest, why should we accept any less from our Commander-in-Chief? 

“President-elect Trump’s sprawling business portfolio, which includes a significant amount of overseas interests, presents a potential obstacle to governance too significant to ignore. Since the election we have already seen instances where the President-elect’s business partners from India have paid courtesy calls to Trump Tower. Clearly, these types of interactions pose a problem. Whether or not President-elect Trump agrees to divest of his business interests, Congress should pass this bill to ensure full accountability from our nation’s highest office.”