Long before it got involved with the dealmakers in mortgage fraud and had to write down tens of millions of dollars, Merchants Bank was a regional bank with a green frog logo, a five-story headquarters in Carmel, Indiana, and a business doing healthcare lending and small commercial mortgages.
In a turn of events that sounds like an enviable success story, the bank grew and grew until it became a go-to partner for multifamily dealmakers across the U.S., churning out $6 billion of apartment loans a year in 2024 and ranking among the top lenders in second-tier cities like Pittsburgh and San Antonio.
But some of Merchants’ rise was powered by loans to a group of players now in hot water. These operators made fraudulent transactions, failed to maintain buildings and left violations with city and state agencies unresolved. Yet the fact that Merchants continued to lend to them sheds light on the little-examined role of lenders in a mortgage fraud scandal that has been plaguing the multifamily industry across the U.S. for the better part of a decade.
The mortgage fraud playbook typically used one of two schemes: inflating financials or flipping property to straw men and taking out loans based on the second, higher price.
Both relied on lenders who would shell out money without too much trouble.
This meant sponsors needed a specific kind of partner, one who was eager to underwrite, even to a borrower who had a checkered history.
Yet while borrowers have been suffering the consequences, including jail sentences, lenders have so far evaded accountability. Banks like Merchants were theoretically the grown-ups in the room, doing due diligence and checking boxes before disbursing funds. Yet they still deemed bad operators credit-worthy and willingly wrote big checks to fund their property empires.
Meanwhile, the bank turned to opaque securitizations to offload some of its risk to private investors, which allowed Merchants to keep the lending machine going. More loans, and higher returns appeased shareholders, but in turn the rush of deals provided fuel for some landlords to commit fraud and expand their empires.
Merchants isn’t alone in handing out loans to troubled borrowers. Even stalwart JPMorgan provided a $481 million loan for an apartment portfolio that later fell into distress because of inflated financials provided by the borrower.
But in part because of its small size and its high concentration of real estate loans, Merchants now faces trouble. It has among the highest percentage of non-performing loans, or loans 90 days past due, of its peer group. And its cheap source of funding — brokered deposits — has collapsed, dropping nearly 80 percent to $1.3 billion in the second quarter compared to a year prior.
Merchants assured investors it has liquidity in its recent earnings: $5 billion in credit from the lenders of last resort, the Federal Reserve’s Discount Window and the Federal Home Loan Bank. (Merchants declined to comment for this story.)
“We have implemented strategies to address our asset quality issues and to enhance our overall risk management practices to ensure long-term resilience,” Merchants’ President and Chief Operating Officer Mike Dunlap said in a statement announcing earnings.
The lenders’ borrowers
In growth mode, Merchants lent to some less creditworthy borrowers.
Apex Equity’s Aron Puretz, of Lakewood, New Jersey, was one.
In February 2022, Puretz turned to the bank to finance the purchase of three apartment buildings in Erie, Pennsylvania. He scribbled his initials on documents for a $10 million loan to acquire and renovate the 205-unit complex. It was one of five loans, totaling $65 million, that Merchants provided to Puretz and his affiliates.
But there was a problem.
As Merchants wrote checks to Puretz, various government agencies were scrutinizing the landlord’s web of companies. The city of Columbus, Ohio, was looking at more than 400 property code violations in one of Puretz’s properties. In Chicago, the U.S. Housing and Urban Development was seeking to impose penalties over conditions of Puretz rental buildings. Indiana’s Attorney General’s office had sued an Apex affiliate over unpaid utility bills.
Puretz wasn’t just failing to maintain his properties. The Department of Justice and the Federal Housing and Finance Agency has since charged Puretz for his role in a $54.5 million fraud, where he and his co-conspirators sent fake purchase prices to lenders in order to obtain larger loans from Freddie Mac and private lenders. (None of these loans came from Merchants.) Puretz pleaded guilty in 2024 to one count of wire fraud, and a judge sentenced him to five years in prison.
Less than two years later, Merchants launched a foreclosure on Puretz’s Erie property and went after Puretz personally for signing a guarantee.
Puretz had company.
In 2023, Merchants shelled out over $24.5 million in loans to 33-year old investor out of Suffern, New York, named Moshe Silber and his business partner, Fred Schulman, for a trio of apartment buildings outside of Pittsburgh.
A year later, Silber and Schulman pleaded guilty for their roles in a scheme where Silber presented a fake sales price to Fannie Mae and JLL to obtain a $74 million loan for a Cincinnati rental property.
In late 2024, the Allegheny County District Attorney’s office in Pennsylvania also went after Silber and Schulman’s companies for the conditions of Mon View Heights, one piece of the trio of buildings purchased with the Merchants loan. In February, the D.A. announced criminal charges against Silber and Schulman.
“No person, let alone, family, should have to live in these conditions,” DA Stephen Zappala said. “To have raw sewage pouring out in front of a bus stop, dilapidated amenities for children and broken railings, it’s simply unacceptable and our citizens deserve better.”
Merchants is now seeking to foreclose on the Mon View Heights apartment complex.
The list of questionable loans made during those two years continued.
In 2022, Merchants lent $22 million to Mendel Steiner for an apartment complex in Lafayette, Indiana. In January, Steiner died by suicide at the age of 33, as debts mounted and occupancy fell across his portfolio. Merchants also closed a $20 million loan for an 280-unit apartment property in Little Rock, Arkansas in 2022. Merchants is foreclosing on the property and alleges one the buildings at the complex caught on fire in December 2023 and the borrower, an entity tied to Shlomo Tajerstein of Brooklyn, failed to disclose it, breaching the terms of the loan. A receiver has been appointed for the property.
Then, in 2023, Merchants made $18.5 million in loans to affiliates of Troy Green, the same year that the New York Attorney General barred Green from owning, operating or managing affordable housing properties in New York.
It also extended a $53 million loan to Miami-based developer Tzadik Management for two apartment complexes in Sioux Falls, South Dakota. At the time, its CEO, Adam Hendry claimed in one lawsuit Tzadik was “blacklisted” by Fannie Mae. Hendry has since put the properties into bankruptcy with Merchants listed as the second largest creditor.
Merchants did not mention any of these foreclosures in its public investor presentations at the time. Instead, it touted loan growth and its impressive return on equity thanks to the magic of complex securitizations.
Growth of a lender
Merchants was the brainchild of two co-workers at a bank in Indianapolis. In 1990, Randy Rogers asked Michael Petrie to join PR Mortgage and Investments, a mortgage firm. To grow the business, they bought Greensfork Township State Bank in the tiny town of Lynn, Indiana, in 2002. They started acquiring more local banks, taking on the name Merchants Bank.
As the financial crisis roiled Midwestern banks, Merchants had zero non-performing loans and the highest return on assets in Indiana, allowing it to lend when others were not, according to a story in the Indianapolis Business Journal.
“I don’t know if we do anything better than anyone else,” Petrie, told the publication in 2009. “We just do business with good people.”
The bank’s low profile changed in 2017. Merchants, with only $3 billion in assets and a niche in apartment lending, wanted to take advantage of the frothy public markets.
It filed an initial public offering, raising $100 million at a share price of $16. Petrie rang the ceremonial bell at Nasdaq’s trading floor in New York City. Confetti in the bank’s colors of green — like its mascot, the frog — and white fell on to an excited Petrie. The founding partners controlled over 90 percent of the stock.
“This is the American dream. Two guys start a company and take it public,” Petrie told a publication in 2019.
Merchants was still not a household name. It needed outside depositors from other parts of the country to fund its lending. It advertised by promoting its higher rates on deposits at a time when interest rates remained near zero.
“Our campaign is focused around deposits because we pay about the highest rate in the market,” Petrie said in 2019.
Merchants’ assets grew to $12.6 billion by the end of 2022 with its stock price hovering around $24. It wrote $3.1 billion in multifamily loans that year, developing a strong presence in major markets such as New York City. In 2024, American Banker named it No. 2 on a list of top performing banks in the U.S.
Synthetic risk transfers
Securitization is a standard practice for any lender. Loans are bundled together and sold to investors in pools, allowing lenders to reduce their risk in case a loan goes bad.
But Merchants found novel ways to revamp this old process: synthetic risk transfers.
Banks have to set aside a portion of their capital as a cushion in case loans go bad. Synthetic risk transfers are used to offload a portion of their risk-based capital to outside investors, who assume part of that risk. Banks then do not have to hold that capital in reserves and can push out more loans, while technically keeping the loans on their balance sheet.
Merchants turned a securitization of $1.3 billion in health care real estate loans in 2023 into a synthetic risk transfer, a first for a regional bank with real estate loans, the trade publication Commercial Mortgage Alert reported.
In Merchants’ case, it issued a $158 million “credit-linked note” to facilitate the $1.3 billion deal to an unknown investor group. The $158 million covers any losses in the loan pool. In exchange, Merchants paid over 15 percent interest on the deal. The catch: Merchants could be on the hook if losses exceed $158 million — or if certain situations, including fraud, occur.
Synthetic risk transfers are under increasing scrutiny from watchdog groups.
“If you’re unfamiliar with synthetic risk transfers, there’s a chance you’ll hear all about them when the next financial crisis hits,” Bloomberg Opinion forecast. “They’re the latest way for big banks to game rules designed to safeguard the system, and they’re growing fast.”
Merchants explored a few ways to transfer risk off its balance sheet, including using credit default swaps. By August 2024, the firm had completed nearly $4 billion of securitizations.
But problems started to show up that year. The bank reported 2.6 percent of its total loans were non-performing, a high number for a bank of its size. Many were in its multifamily segment.
Short-seller NINGI Research issued a report in October 2024 warning the bank was not holding the required reserves needed for its potential losses and citing the bank’s lending to troubled borrowers.
Merchants Bank “has been aggressively expanding its assets base by making bridge loans to mortgage fraudsters, state-barred real estate investors, and negligent landlords. Now, the results of this amoral approach are coming home to roost,” the report went.
Merchants’ stock fell almost 20 percent after the release of the report.
Bad Quarter
In 2025, the federal mortgage fraud probe was heating up. More than five people had pleaded guilty in the same federal court in New Jersey. Three, Aron Puretz, Fred Schulman and Moshe Silber, were customers of Merchants Bank.
The DOJ and the FHFA have been investigating the mortgage fraud schemes, but Merchants’ recent earnings report suggests there are more fraud investigations going on than the DOJ has publicly disclosed.
The bank recorded write-downs for 14 customers totaling $46.1 million in the second quarter, compared to just $3.5 million in the previous year. Many of its write-downs are associated with fraud and new appraisals for multifamily, according to the company. Merchants added it is seeking legal remedies and obtained more information after appointing receivers for its troubled properties.
Taking over properties owned by slumlords could require Merchants to chip in more cash. Those properties, like Mon View Heights, will have negative equity, leading to further losses.
Yet, despite the loan write-downs, the bank’s leaders are upbeat, claiming the bank’s “book value” has reached new heights.
“We are optimistic about our future and confident that our collective efforts will drive the stability and growth of our institution,” Dunlap, president of Merchants, said in its second quarter earnings report.