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Connecticut Sues Brokers, Realtors in Alleged Subprime Scam

'Vast predatory lending scheme' targeted low-income homebuyers

September 6, 2007

Blumenthal alleges that through a multi-layered scheme, the defendants misled consumers and mortgage lenders into property purchases that financially destroyed dozens of homebuyers, while benefiting only the defendants, their associates and family members.

“This pervasive predatory lending scheme left a trail of shattered lives and lies – false promises to first-time homebuyers about property values, loan terms, and income levels,” Blumenthal said. “Our investigation has uncovered consumers who sought the American Dream – but bought a financial nightmare."

The lawsuit charges that homebuyers were victimized by a "vast scheme" with multiple layers of lies and co-conspirators.

"We allege that this predatory lending scheme enticed consumers with false promises of profits from investment rental properties and nonexistent management services for tax and mortgage payments and other expenses," Blumenthal said.

Inflated values

Blumenthal said homebuyers were purposefully encouraged to buy properties whose values were inflated, using mortgages with concealed costs that they could never realistically afford, because their incomes and assets were falsified with bogus bank and employer records. And he said the buyers were discouraged from seeking outside assistance from independent home inspectors and lawyers.

"These practices preyed on the most vulnerable citizens – many of them first-time unsophisticated low-income homebuyers who spoke little or no English. The conspirators were illegally enriched by profits from inflated prices for properties, and fees and commissions," he said.

The defendants are Royal Financial Services, LLC, of Trumbull; First Source Mortgage Solutions, Inc. of Branford; Elizabeth Athan Real Estate, LLC, of Shelton; J.G. Property Management & Investment, LLC, of New London; Brian Guimond, d/b/a Cutting Edge Contracting of Norwich; and Jose Guzman and Mauricio Lancia for allegedly managing the schemes on behalf of the defendant companies.

Blumenthal sued on behalf of Department of Banking Commissioner Howard F. Pitkin and the state in coordination with Department of Consumer Protection Commissioner Jerry Farrell, Jr.

Relief sought

“Financially battered and blindsided, some consumers face foreclosure and years of damaging credit ratings. They deserve relief immediately," Blumenthal said.

“Our legal action seeks money back to consumers and severe penalties for practices that undermine an entire industry, endangering not only consumers directly involved, but the economic welfare of the region. This case is only the beginning of a challenging time in the real estate and lending industry.

"This turmoil and calamity, only one in numerous emerging cases, has revealed the worst of the lending industry,” he said.

Blumenthal’s lawsuit seeks restitution for every consumer harmed; an order preventing further violations; and civil penalties to the state.

How it worked

Blumenthal described how the alleged scheme worked:

J.G. Management and Guzman, who were not licensed by the state to engage in real estate transactions, and Elizabeth Athan Real Estate, solicited low-income consumers, including renters receiving federal housing assistance, to buy through them multiple or multi-unit residential properties. They promised consumers, among other things, favorable mortgage terms, cash back at closing, and diminished monthly housing expenses, Blumenthal said.

J. G. Management and/or Guzman also pledged to provide property management services for rental properties that the consumers purchased through them – services including maintenance, finding renters, collecting rent and making mortgage and tax payments.

Once a consumer agreed to work with the defendants to purchase properties, the defendants referred consumers to Royal Financial or First Source to act as the mortgage broker.

J.G. Management, Guzman and the Elizabeth Athan agency would then select the property or properties for purchase from a stock of properties owned by the defendants, their family members or associates. The properties were sold to consumers at inflated prices – often tens of thousands of dollars more than what they were purchased for months earlier. The defendants substantiated the inflated prices to consumers and lenders through bogus and artificially inflated appraisals.

When consumers inquired about hiring a home inspector, the defendants often convinced them it was unnecessary or potentially adverse to the consumer, Blumenthal charged.

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