Five real estate investors whose business was the subject of a major BuzzFeed News investigation were arrested this week for allegedly defrauding lenders and taxpayers out of millions of dollars in a scheme that targeted New Yorkers at risk of foreclosure.
The US Attorney’s Office for the Eastern District of New York charged the men with conspiracy to commit wire fraud and bank fraud.
Two years ago, BuzzFeed News revealed how this group of investors turned properties on the brink of foreclosure into million-dollar listings sold on the reality TV show Million Dollar Listing New York.
Amid the lingering effects of the mortgage crisis, Iskyo “Isaac” Aronov and his four partners located homeowners in rapidly gentrifying neighborhoods who owed more than they could pay. The partners negotiated with banks to let the property go for far less than market rate, a process known as short selling. Then, with the original owners gone, the partners performed fast gut renovations, installing modern fixtures and marble counters, and resold the homes for north of a million dollars.
Prosecutors this week said Aronov and his team, which controlled every aspect of the short-selling process, traded on “false, misleading and incomplete” information, lying to the government and to lenders like Fannie Mae and Freddie Mac, failing to disclose unauthorized payments and their business relationships. BuzzFeed News linked the group to nearly 240 homes.
“As alleged, the defendants defrauded mortgage loan holders out of millions of dollars, with taxpayers saddled with much of the loss,” Richard P. Donoghue, United States attorney for the Eastern District of New York, announced.
In the process, the partners helped fuel the rapid gentrification of brownstone Brooklyn, displacing black and Latino families who in many cases had lived there for decades, and repopulating the area with young, mostly white professionals.
“What makes their alleged crimes even more egregious was their artificial devaluation of properties that, when resold or ‘flipped,’ resulted in large profits,” said Special Agent in Charge Christina Scaringi of the US Department of Housing and Urban Development’s Office of Inspector General, one of several agencies involved in the investigation. “Many of these homes were located in economically challenged areas of New York where affordable housing is at a premium.”
The indictment comes amid a larger crackdown on predatory real estate investment targeting New Yorkers who remain in foreclosure, dubbed an “epidemic of fraud” by an investigative grand jury last year. At least 20 people have been convicted in alleged scams. New York state also passed legislation this year meant to better protect homeowners who had been the target of predatory investment or fraud.
BuzzFeed News found at least 12 lawsuits in which borrowers said they had been deceived by the group.
In some cases, homeowners said the investors got them to sign over the deeds to their homes before the sales went through, claiming it was a normal part of the short-sale process. That gave the investors leverage to pay less, because no one else could buy the house — but this left some homeowners, like Denise Riera of the Bronx, on the hook for mortgages to homes they no longer owned.
Aronov appeared in court in Miami and his bond was set at $500,000, according to court papers. The four other men were arraigned in Brooklyn. Two of them also were released on bond, including Michael Herskowitz, a 40-year-old Brooklyn lawyer.
Since 2015, Herskowitz has been implicated in at least two other schemes targeting borrowers in foreclosure in Florida and Queens. He paid a $281,000 settlement in the Florida case and pleaded guilty to a disorderly conduct violation in the second.
Herskowitz’s attorney declined to comment for this story, citing the ongoing case. Neither Aronov’s attorney nor those for the three other defendants, Michael Konstantinovskiy, Tomer Dafna, and Avraham Tarshish, replied to requests for comment.
The men face up to 30 years in prison and a $1 million fine if convicted in the federal case. They would also be forced to forfeit any property obtained through their alleged offenses, according to the indictment. If that property can’t be easily forfeited — for instance, if a house has been resold — they’ll have to give up other assets.
“That may be a good thing for the borrowers,” said Catherine Isobe, senior staff attorney at Brooklyn Legal Services, who has worked on foreclosure cases for years. If homeowners were defrauded or lost equity, they could file a petition in the forfeiture proceeding to be made whole. But that can be a long road, and one more difficult if borrowers were deep in debt.
Lukas Vrbka is an independent reporter and researcher based in Brooklyn.
Contact Lukas Vrbka at firstname.lastname@example.org.
Lisa Riordan Seville is an independent reporter based in Brooklyn, New York. Her work has appeared on NBC News shows, NBCNews.com, The Guardian, The Nation and Vice, among other outlets.
Contact Lisa Riordan Seville at email@example.com.
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