Commercial Brokerage JLL Takes $18 Million Loss In Loan Fraud Scheme

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Remember before the financial crash of 2008 when anyone with a pulse could get a loan—and some people without pulses got them, too, when appraisers were jacking up values and cash back at closings was commonplace? Three New York Tri-State area investors jumped into their DeLoreans and time-traveled back to 2007 because they’ve just pleaded guilty to a creative financing scheme on a Cincinnati multifamily apartment complex that would have old-school fraudsters shocked by their audacity.

An Inflated Price and Fraudulent Documents

According to a recent article by CoStar, Department of Justice (DOJ) investigators uncovered a multiyear scheme that cost commercial brokerage JLL $18 million. 

Investors Fredrick Schulman, 72, of New York; Chaim “Eli” Puretz, 29, of New Jersey; and Moshe “Mark” Silber, 34, of New York, pleaded guilty to wire fraud after obtaining a $74.25 million Fannie Mae loan on the 976-unit Williamsburg of Cincinnati Apartments & Townhomes, which they acquired for $70 million in March 2019. They attempted to do a double closing, jacking up the price of the apartment building to $95.85 million, which was the sale price presented to the lenders through fraudulent documents, according to the DOJ. 

Specifically, Silber, Schulman, and other co-conspirators used stolen identities presented to JLL and Fannie Mae to represent the buyer of the larger purchase price. The double closing occurred on March 8, 2019.

JLL attributed the loan to an $18 million loss on their second-quarter earnings report. According to a recent article in the Wall Street Journal, this kind of fraudulent activity has led to more stringent application processes, with lenders required to independently verify financial information from borrowers seeking loans for multifamily properties, according to estimates from their latest annual filings, Freddie Mac and Fannie Mae, which the U.S. government backs, securitize 40% of the $2.2 trillion of multifamily mortgage debt as of September 2023.

The Assessed Value Crumbles

Interestingly, the Cincinnati property was appraised at $99 million when the loan was originated in 2019, allowing for the higher sales price. However, whether through mismanagement, an adjustable-interest rate mortgage, or tenant falloff, it was reappraised in March 2024 for $34 million and, according to CoStar data, was over 90 days delinquent.

“A receiver has been appointed, and we’re intending to stabilize the property, including some occupancy improvements, before the asset is sold,” Karen Brennan, JLL’s CFO, said on the company’s earnings conference call.

Not the Fraudsters’ Only Scam

The DOJ also disclosed that the three fraudsters also pleaded guilty to another scam, in which they defrauded lenders on another loan originated by JPMorgan Chase on a commercial property in Troy, Michigan. Silber, Schulman, and Puretz acquired Troy Technology Park in September 2020 for $42.7 million. To support an inflated purchase price of $70 million, the DOJ claims the accused submitted a fraudulent letter of intent to the lender and appraiser to purchase the property from another party for $68.8 million. 

JPMorgan lent $45 million on the Troy Technology Park loan, which was transferred to special servicing in December “due to mortgage fraud and remains past due for the December 2023 payment,” according to the monthly July bondholder report for the bond deal. The property was foreclosed upon in May 2024.

According to the DOJ, Silber, Schulman, and Puretz are scheduled to be sentenced on December 3, 2024, and each will receive a maximum five-year sentence.

A Rise in Mortgage Fraud

The number of fraudulent mortgage schemes has risen since 2022, when higher interest rates led to declining commercial property values. The increasing DOJ crackdown has resulted in borrowers having to submit rent receipts and increased scrutiny of financial documents. 

Fudged income statements and faked property sales at inflated prices are two of the most common fraudulent documents submitted for loans. Fannie Mae has methodically been blocking mortgage brokers such as Meridian Capital Group after allegations of impropriety by brokers to get larger loans. 

Final Thoughts 

The audacity of the schemes in Ohio and Michigan implies that they didn’t just come out of thin air. They infer that other “investors” had tried something similar, thus emboldening Silber, Schulman, and Puretz to commit their fraud.

Pre-2008, doctored financial documents were commonplace in real estate transactions, and many such deals only came to light when people involved—especially banks—began to lose money. But as long as everyone was making money, many fraudulent deals went undetected. 

The lunacy behind the Ohio and Michigan deals was that JLL and JPMorgan Chase lost millions of dollars. How Silber, Schulman, and Puretz expected to get away with it is baffling—but presumably, they knew someone who had been successful doing something similar in the past. 

Ultimately, becoming successful in real estate does not require the kind of technical and analytical mind needed for other high-earning industries such as tech. It’s a numbers game. There are enough legal avenues open to investors to make money without breaking the law, which is why, when cases such as these come to light, it’s hard not to be stunned by the fraudsters’ stupidity.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.