Why the Barry Drillman case is such a big deal

Investor’s guilty plea has a domino effect in Brooklyn, New Jersey real estate

Barry Drillman case led to Fannie ban of Riverside, Madison Title
Galactic Litigation Partners' Fred Schulman, Riverside Abstract's Shaul Greenwald and Madison Title Agency's Joseph Rosenbaum (Galactic Litigation Partners, Riverside, Madison Title, Getty)

The Department of Justice’s case against Boruch Drillman, an unknown Brooklyn-based real estate investor, sent shockwaves throughout the real estate world.

Drillman pleaded guilty in December for his role in a $165 million fraud scheme. As part of the scheme, Drillman and his co-conspirators used fake closings with inflated sales prices to obtain larger loans than they would have otherwise received. Drillman now faces up to five years in prison. 

But real estate fraud in New York and New Jersey is as common as turnstile jumpers. Threats of jail time are also not unusual. So why is the fraud different from all other real estate fraud?  

The case has had a domino effect, which is trickling throughout Brooklyn and New Jersey mid-market real estate.

Fannie Mae has already zeroed in on title insurers, Madison Title and Riverside Abstract, who participated in the closings on Drillman’s fraudulent deals. Fannie has said it will no longer accept delivery of multifamily loans closed with Madison and Riverside. A ban by Fannie Mae is a near death knell for Madison and Riverside’s multi family businesses. (Neither has been accused of wrongdoing.)

There are likely charges coming down the line. Drillman, 36, does not appear to be the mastermind, according to sources familiar with the case. He was just one player in a wide ranging scam, according to an examination of the Department of Justice’s filings. Neither Drillman nor his attorneys responded to a request for comment. 

Here’s what we know so far about the fraud:

Troy Technology Park

In February 2020, investor Eli Puretz of Apex Equity emailed the owner of an office complex in Troy, Michigan, with an offer to buy the property for $42 million. Puretz followed up with a letter of intent signed by his father Aron. In July, the owner and Puretz came to terms and inked for $45 million. 

But a month later, New Jersey broker Aaron Rosenfeld forwarded an email from Drillman to JPMorgan seeking a loan for the property. 

Drillman, not Puretz, claimed to be the property’s representative. 

In a rather unsophisticated scheme, Drillman told the lender he paid $70 million for the office park. Based on that higher sales price, JPMorgan lent $45 million to Drillman, a much higher value than it otherwise would have lent to him. That allowed Drillman and Puretz to buy a property with essentially no investment of their own, as the loan and actual purchase price were close to the same amount.

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To keep the lender and seller in the dark, Drillman and Puretz arranged two closings, according to the DOJ. One had the actual price and another closed with the higher, fake price. Riverside Abstract acted as the title company for both closings. In order to close, Drillman and his conspirators nabbed a one-week, $30 million loan to close at the inflated sale price. 

Puretz did not return a request for comment.

Williamsburg of Cincinnati

The Williamsburg of Cincinnati apartment complex poses a bigger problem for Drillman. 

Not only did Drillman and his co-conspirators allegedly defraud a lender, but also Fannie Mae. 

Fannie plays a crucial role in the mortgage market by buying loans from lenders. It ensures there is an active buyer for residential loans, providing a “government guarantee” or “government backstop.” 

But in this case, the government alleges that Drillman and his co-conspirators passed along fraudulent sales agreements to their lender, JLL, whose loan was then sold to Fannie. 

Prosecutors allege the scheme began around 2019. At the time, the owner of the Williamsburg of Cincinnati agreed to sell the property to a person with the initials N.F. for $70 million. (The government did not release N.F.’s full name.) 

But the DOJ alleges that Rhodium’s Frederick Schluman and Mark Silber were the true owners of the property.  

The pair allegedly used N.F.’s signature, without his knowledge, to acquire the property. In March 2019, they placed his signature on more documents to sell the property for $96 million to Drillman. 

Once again, Drillman and the Rhodium Capital principals kept the lender in the dark about the true sales price. They also failed to disclose that it was not an arm-length transaction. The DOJ alleges Drillman and his partners performed two closings with Madison Title. The lender relied on their $96 million sales price in providing a $74.2 million loan. 

Silber and Schulman then allegedly sent over instructions on how to distribute the $25.6 million in profits from the flip. The proceeds were transferred to a Rhodium Capital principal, according to the DOJ.

Schulman did not return a request to comment. Silber’s attorney, Richard Weber of Winston & Strawn, said the matter is under investigation, and “we are unable to provide further comments about the government’s allegations at this time.”