Case emerges amid crime spike as loan applications drop
A New York man has pleaded guilty for his role in a mortgage fraud scheme involving multiple mortgage loans at a multifamily complex, US Justice Department officials said Tuesday.
Jacob Deutsch, 57, of Brooklyn, NY, waived his right to be indicted and pleaded guilty before US District Judge Omar A. Williams, officials said. The guilty plea was to a charge stemming from what officials described as a wide-ranging mortgage fraud scheme involving 24 mortgage loans on numerous housing properties in Harford totaling nearly $50 million, officials said.
According to court documents and statements in court proceedings, Deutsch and Aron Deutsch work at B H Property Management, LLC, a property management company that manages numerous multifamily housing properties in Hartford, according to an affidavit. From September 2016 through May 2021, Jacob Deutsch, who ran the day-to-day operations BHPM, and Aron Deutsch engaged in a scheme to defraud several financial institutions, government-sponsored enterprises Freddie Mac and Fannie Mae, and the US Department of Housing and Urban Development, by providing them with false information overstating the value of multifamily housing properties managed by BHPM in connection with loans secured by those properties, according to justice officials.
As part of the scheme, Jacob Deutsch provided false rent rolls and falsified leases to the victim financial institutions and their appraisers, which either overstated the number of renters by listing fictitious renters or others not actually living there, or falsely inflated the amount of rent paid by occupants, officials described.
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“Jacob Deutsch deceived inspectors into believing that unoccupied apartments were occupied by staging the apartments with furniture and by requiring BHPM employees to falsely tell inspectors they lived there and to lie to inspectors if asked whether there were vacancies,” according to the statement. “For instance, a rent roll and income and expense summary submitted by Jacob Deutsch to CBRE Capital Markets, Inc. (“CBRE”) in June 2018 falsely represented that 16 Evergreen Avenue was 100% occupied when, in fact, not a single tenant resided there at the time. Later, Jacob Deutsch e-mailed CBRE pictures of money orders and checks purporting to reflect rent payments from fake tenants on the falsified rent rolls for 16 Evergreen Avenue to show proof of payment of rent when, in fact, the money orders and checks had been purchased by Aron Deutsch or BHPM employees at Aron Deutsch’s direction.”
Jacob Deutsch also provided the victim financial institutions with false and inflated income statements and financials for the properties, doctored bank statements, doctored or false documents overstating the purchase price of various multifamily housing properties, and doctored checks and invoices showing false or overstated capital improvements made to those properties, the affidavit noted.
“The false information provided by Jacob Deutsch induced the victim financial institutions to issue loans that they otherwise would not have issued on the requested terms, or for amounts larger than they would have authorized had they been provided with truthful information,” officials wrote. “In addition, the false information induced Freddie Mac and Fannie Mae to purchase the resulting loans from the victim financial institutions, and induced HUD to issue a mortgage insurance commitment to a victim financial institution.”
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Jacob Deutsch and Aron Deutsch were arrested on a criminal complaint on May 19, 2021, officials said. On Tuesday, Jacob Deutsch pleaded guilty to one count of conspiracy to commit mail fraud and wire fraud affecting a financial institution, an offense that carries a maximum term of imprisonment of 30 years. He is released on a $50,000 bond pending sentencing, which is not scheduled.
Aron Deutsch, 61, of Monsey, New York, pleaded guilty to the same charge on June 1, 2022. He was released on a $100,000 bond pending sentencing, which is scheduled for Nov. 3, justice officials said.
The news comes amid a spike in mortgage fraud. According to a CoreLogic report, mortgage fraud risk soared in the fourth quarter of 2021 due to a drop in overall loan application volume and the shift to a purchase market.
CoreLogic’s 2021 Mortgage Fraud Report showed a 37.2% year-over-year increase in fraud risk at the end of the second quarter of 2021. The large increase followed a drop seen in 2020 – a decrease driven mainly by the surge in traditionally low-risk refinances during the pandemic.
An estimated 0.83% of all mortgage applications contained fraud, about one in 120 applications, an increase over the second quarter of 2020, where the estimate was 0.61%, or about one in 164 applications. Risk in the purchase segment increased 6%, with investment properties driving the highest risk in both purchase and refinance populations, analysts noted.
“Refinance opportunities that surged lending volumes during the pandemic may be winding down. The outlook is for fewer low-risk refinances compared to purchases and cash-out refinances, which translates to a higher-risk environment for fraud,” said Ann Regan, executive, product management at CoreLogic.