A percentage of home foreclosures in Brooklyn occurred due to straw buying and other fraudulent mortgage activities.
One of the straw buying cases being investigated by the U.S. Federal Bureau of Investigation is the case of Queens resident Ishwardat Raghunath who masterminded a mortgage fraud that involved a total of $7 million home loans in Brooklyn, Queens and the Bronx.
In the federal court in Brooklyn where the case was filed, Raghunath, an immigrant from Guyana, was accused of recruiting straw buyers to buy houses in the three boroughs.
Straw buyers are people with strong credit scores who lend their names and financial records to a deal maker so that people with poor credit records can buy homes using house loans. In exchange, straw buyers are paid thousands of dollars. Raghunath typically paid $5,000 each to straw buyers.
Raghunath, however, inflated the sales prices of the homes in his loan applications, and when the loans were approved, he put the extra loan proceeds into his bank account. Because the real buyers actually did not have adequate income, they were able to make only the initial mortgage payments, ultimately defaulting on the loans. Lenders filed foreclosure cases against the straw buyers, adding to home foreclosures in Brooklyn.
According to the FBI, two partners in the fraud, Bronx resident Halal Ahmed and Queens resident Phyllis Seemongal, have been arraigned on wire and bank fraud.
Some people may look at straw buying as a smart remedy for prospective buyers with weak credit records and as an investment strategy for people with strong credit records. But straw buying is illegal because the straw buyer is making false statements, signing on documents telling lenders they will use the loans and will occupy the properties to be purchased.
Additionally, lenders or mortgage guarantors such as the FHA, are put to greater risks because they are unknowingly giving mortgage loans to borrowers with inadequate income or people with bad credit scores. In the end, they will lose much of their investments from the sales of foreclosed homes disposed of at bargain prices.
New York home foreclosures slowed in January 2010 compared to the previous month, but they are still higher than foreclosures in January 2009.
Home foreclosures in Brooklyn multifamily and apartment complexes have also been distressing families living in these affordable housing units, as some buyers of these buildings failed to make the needed repairs and renovations.