The Real Deal New York

8 Brooklyn homeowners win fraud case against Yaron Herscho’s United Homes

June 07, 2011 01:03PM
By David Jones

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United Homes head Yaron Hershco and 557 Hancock Street (building source: PropertyShark)
[Updated 4:18 p.m.] A group of eight African-American homeowners were awarded a total of more than $1 million last week, after a nine-member jury found that Yaron Hershco’s United Homes committed fraud — yet cleared him of discrimination — in a wide-ranging property flipping scheme in Bedford-Stuyvesant,
Bushwick and other Brooklyn neighborhoods.

Hershco, a developer of single-family homes and luxury condominium buildings, had been accused in the federal district court complaint of luring first-time homebuyers to a so-called one-stop shop, where appraisers, lenders, lawyers and other officials conspired to sell them homes at over-inflated prices until the buyers were on the brink of foreclosure.

The jury decided that the participants in the scheme, including Hershco, United Homes, Allied
Mortgage Banking, Olympia Mortgage and attorney Benjamin Turner, must pay punitive damages to the plaintiffs.

“He concentrated in particular neighborhoods, but he sold hundreds of houses in very small
communities that were all shoddily renovated, with loans that were never sustainable,” Meghan Faux,
director of the foreclosure prevention project at South Brooklyn Legal Services, told The Real Deal.

She said one of her plaintiff’s homes was lost to foreclosure, but the agency was able to negotiate new,
affordable mortgages for three of the other homeowners.

Hershco’s attorney Peter Gordon, however, said his client was vindicated because the only basis to take
the case to federal court was the racial discrimination claim, which was rejected by the jury.

“They called my client a racist,” Gordon told The Real Deal. “This is America; you can buy something for
$10 and sell it for $20.”

Gordon said he plans to file an appeal and expects to have the damages reduced in the remaining parts
of the case.

The lead plaintiff, a Brooklyn woman named Sandra Barkley, alleged she bought a home at 557 Hancock
Street in the Bedford-Stuyvesant neighborhood of Brooklyn in 2002, for $359,000, only three months
after United Homes had bought the property out of foreclosure for $153,000, did a minimal amount of
renovation and then had it appraised for an inflated value.

Hershco is an influential developer in Brooklyn, having been the original developer of the Oro
condominium, who failed to build a second tower at the property. He also built a luxury rental at 133
Water Street in the Dumbo section of Brooklyn and the Toy Factory condominium at 176 Johnson Street
in Brooklyn.

City Council member Letitia James said that the verdict against Herscho should be referred to the state
attorney general and District Attorney Charles Hynes for further investigation. She noted that her
district had been the subject of similar business practices before, including the notorious Delta Funding
scandal, where elderly and African-American homebuyers were tricked into getting mortgages they could not afford.

As The Real Deal previously reported, Herscho had been accused of shoddy construction in several
outer borough neighborhoods, including Far Rockaway, Queens.

Richard Naidich, attorney for United Homes, declined to comment. A spokesperson for the AG declined
to comment and a spokesperson for DA Charles Hynes said the situation has not been referred to his office.

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