Kenneth Schwartz, 64, Huntington, New York, and Helene Stetch, 50, Lindenhurst, New York, have been charged by a Queens County grand jury with defrauding homeowners, financial institution and real estate buyers out of more than $1 million through a short sale mortgage fraud scheme that occurred over a nineteen-month period between October 2008 and May 2010.
Stetch worked with defendant Schwartz at the law firm of Kenneth B. Schwartz, Esq., Carle Place, New York, until her termination in mid-2010.
The two defendants were arraigned before Acting Queens Supreme Court Justice Barry Kron on a 28-count indictment charging both defendants with six counts of second-degree grand larceny, one count of first-degree criminal possession of stolen property, six counts of second-degree criminal possession of stolen property, two counts of third-degree grand larceny, two counts of third-degree criminal possession of stolen property, one count of fourth-degree grand larceny and one count of fourth-degree criminal possession of stolen property. The defendant Stetch was additionally charged with four counts of second-degree criminal possession of a forged instrument, three counts of first-degree falsifying business records and one count of first-degree scheme to defraud. The defendants, who each face up to 25 years in prison if convicted, were ordered released on their own recognizance and the case was adjourned to July 7, 2014.
According to the charges, the law firm of Kenneth Schwartz represented sellers and lenders, and sometimes buyers, in the sale of five houses in Queens County, in which the closings were held at the defendants’ Carle Place law offices and occurred between October 2008 and May 2010. In each transaction, the seller was allegedly delinquent on the mortgages and sought to sell the property in a short sale in order to avoid foreclosure.
In this particular case, the mortgages on the five houses involved typically had a first and second lien holder, both of whom had to approve of the sale. Although a first lien holder may approve a short sale, a second lien holder may disapprove of the sale because it would receive a paltry sum or nothing at all.
According to the charges, Stetch represented the five property sellers and engaged in short sale negotiations with the goal of persuading the underlying lien holders to accept less than the outstanding mortgage to discharge the debt and the lien. It is alleged that Stetch proceeded to closing in all five instances without the short sale approval from both lien holders of the property, and although having proceeded with a sale, Stetch failed to pay off the underlying mortgages. In fact, it is alleged that she continued short sale negotiations – ranging from a few months to more than a year – with the lien holders as if no sale had yet occurred.
It is additionally alleged that since the law firm of Kenneth Schwartz was the lender’s settlement agent, mortgage loan funds were wired into an attorney trust account in Kenneth Schwartz’s name and for which Schwartz and Stetch were the only authorized signatories on the account. Disbursement of the funds was conditioned upon certain things taking place – including, paying off the underlying mortgages and recording the new mortgages so that the lender would be in position of first lien holder; preparing HUD settlement statements that correctly listed how the mortgage proceeds would be disbursed; and obtaining title insurance on behalf of the lender.
In fact, it is alleged, that the underlying mortgages were not being paid off, the HUD settlement statements falsely indicated that there were no underlying mortgages to be paid off, and no title insurance was purchased. Instead, it is alleged that unauthorized and excessive disbursements were made from the attorney trust account where more than $1 million in mortgage loan funds were wired – with Stetch writing the majority of the disbursement checks and Schwartz writing all checks that were payable to himself and a few other checks.
Queens District Attorney Richard A. Brown, joined by Superintendent of the New York State Department of Financial Services Benjamin M. Lawsky, announced the charges.
District Attorney Brown thanked the New York State Department of Financial Services for referring the matter to his office.
The investigation was conducted by Department of Financial Services (DFS) Investigator David Nummey, working under the direction of Ricardo E. Velez, Director of DFS’s Criminal Investigations Unit, and under the overall direction of Joy Feigenbaum, Executive Deputy Superintendent for Financial Frauds and Consumer Protection. Additionally, the investigation was conducted by former Detective-Investigator Jerome Pugh and Detective-Investigator Patrick Dolan, of the District Attorney’s Detective Bureau, and by Forensic Accountant John M. Murphy, of the District Attorney’s Economic Crimes Bureau.
Senior Assistant District Attorney Allison P. Wright, of the District Attorney’s Economic Crimes Bureau, is prosecuting the case under the supervision of Assistant District Attorneys Gregory C. Pavlides, Bureau Chief, and Christina Hanophy, Deputy Bureau Chief, and the overall supervision of Executive Assistant District Attorney for Investigations Peter A. Crusco and Deputy Executive Assistant District Attorney for Investigations Linda M. Cantoni.
District Attorney Brown said, “The two defendants are accused of creating a financial nightmare for the buyers and the sellers of nearly half a dozen Queens properties. The victims in this case only discovered that something was amiss when foreclosure notices for the pre-existing mortgages were served several months after the supposed ‘short sale’ closings. Homeowners were allegedly deceived into selling their property, believing that the underlying mortgages would be satisfied, and buyers and new mortgage lenders were allegedly deceived into believing that the purchased properties were free and clear of prior encumbrances when, in fact, the mortgages were still outstanding.”
District Attorney Brown continued, “In one instance, it is alleged that the defendants arranged for only a portion of a homeowner’s debt to be paid off while retaining a major portion of the mortgage proceeds for themselves and others. The property eventually went into mortgage default.”
Superintendent Lawsky said, “Preying on vulnerable homeowners struggling to avoid foreclosure is an especially vicious crime. It is critical that we protect New Yorkers from the types of predatory schemes that these defendants are alleged to have committed. I commend District Attorney Brown for his work and cooperation in this case.”