Lenders poised to take over apartment empire amid massive mortgage fraud probe

Investigation raises concerns about multifamily lending standards

May.May 01, 2019 04:00 PM
Morgan Management's Robert C. Morgan and the Avon Commons apartment complex in Avon, N.Y. (Credit: Rochester Institute of Technology)

Morgan Management’s Robert C. Morgan and the Avon Commons apartment complex in Avon, N.Y. (Credit: Rochester Institute of Technology)

Rochester-based Morgan Management nearly tripled its apartment holdings over the past decade, building a giant rental portfolio of 140 properties across 14 states with more than 34,000 units.

But amid a massive mortgage fraud investigation which has already led to two guilty pleas, the company has started to shed properties.

Under pressure from creditors who hold about $3 billion in the company’s debt, Morgan is close to transferring the management of nearly its entire portfolio to Harbor Group International, the Wall Street Journal reported.

Prosecutors in the case, one of the largest mortgage fraud investigations since the financial crisis, allege that Morgan executives and their mortgage brokers secured about $500 million in financing fraudulently, both by falsifying documents and by dressing up apartments to look occupied.

Company executive Kevin Morgan, nephew to founder Robert C. Morgan, pleaded guilty to conspiracy to commit bank fraud late last year. Mortgage broker Patrick Ogiony plead guilty to the same charge in March, saying that his crimes involved 20 Morgan properties in New York, Pennsylvania, Illinois, Texas, South Carolina and North Carolina. Robert Morgan has not been charged.

The investigation has raised questions about whether multifamily lenders, including Fannie Mae and Freddie Mac, examine borrower income closely enough. Multifamily loans are not subject to the stricter rules that were introduced for single-family mortgages post-crisis.

In New York, Morgan has already lost one property in Syracuse to a lender, while another complex in Watertown is facing foreclosure. Though few of Morgan’s loans are delinquent, most mortgages have provisions that they are in default if obtained through fraud, which creditors believe empowers them to take action. [WSJ] — Kevin Sun

Related Articles

With a cooling trade war, stocks perform well, including real estate. (Credit: iStock)

Real estate stocks push up this week as U.S.-China trade tensions ease

416 West 25th Street and Maverick Real Estate Partners principal David Aviram (Credit: Google Maps and LinkedIn)

Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case

WeWork co-CEOs Artie Minson and Sebastian Gunningham

WeWork under pressure as losses soar to $1.25B

John Legere (Credit: Getty Images)

WeWork reportedly in talks to hire T-Mobile exec as CEO

195 Broadway and L&L Holding's David Levinson and Robert Lapidus (Credit: Google Maps and L&L Holding)

L&L, Safehold lock in $592M in financing for Downtown building

Tore Steen, CEO of CrowdStreet (Credit: iStock)

CrowdStreet lands $12M in financing, hires execs

A rendering of the The Epic in Dallas, Texas and Westdale CEO Joe Beard (Credit: Westdale, Wikipedia)

No panic: Westdale mulls $50M Series B bond raise in Tel Aviv

(Credit: iStock)

S&P hits another record, but real estate stocks don’t follow suit