Investigation Shows Politicians Profit off Foreclosure Sales

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When New York State Senator John Sampson was arrested last month for allegedly embezzling $440,000 from foreclosure sales, the curtain pulled back on a little known corner of the state’s justice system – the job of foreclosure referee.

These are the private attorneys state court judges appoint to figure out how much is owed on a mortgage and to oversee any sale at a foreclosure auction.

WNYC spent weeks trying to understand how these court appointees operate -- reviewing property records, real estate data and hundreds of court files – and found a system with little oversight, rife with irregularities and dominated by political insiders.

While more than 2,500 attorneys have been eligible to act as referees over the past few years, about 3 percent received a third of the cases, according to a WNYC analysis of data from real estate information service PropertyShark.

Among the attorneys who get the most appointments are current and former state legislators, city council members, county committeemen and judicial delegates.

State court judges – who are themselves elected – have historically rewarded party loyalists with a variety of court appointments, said Adam Skaggs, senior counsel at the Brennan Center for Justice. The more lucrative jobs include guardians and receivers.

“Patronage in the court system in New York has been a problem since the days of Tammany Hall,” Skaggs said. “All too often in New York’s history, again and again and again, these jobs have been given to politically connected cronies of the party bosses, cronies of the judges and it’s been a problem historically throughout the New York Court system.”

When it comes to referees, Judge Lawrence Knipel, the administrative judge for civil matters in Kings County, said he doesn’t think patronage drives appointments, particularly since cases pay an average of $750.

“Put yourself in the judge’s situation,” he said. “You’re going to look for a name you know.”

Judges look for people they trust to do a good job, he added.

Judge Jeremy Weinstein, who is in charge of civil matters in Queens County, said he attended a foreclosure auction recently where there were 15 different referees for 15 sales.

“I certainly recognized three or four of them. But most of them I didn’t know,” Weinstein said.

It’s inevitable some politically connected attorneys will get appointments, he added.

“They should not not be appointed because they’re involved in politics. But they certainly shouldn’t get the lion’s share of them as well and we just have to remain vigilant to make sure that they don’t,” Weinstein said.

Insiders profit

State Assemblyman Jeffrey Dinowitz received 72 appointments on properties scheduled for foreclosure since 2007. Dinowitz has been a delegate to the Democratic National Convention five times and was chairman of the Bronx County Democrats in 2008.

State Assemblyman David Weprin got 68 cases from 2007 through 2010. Weprin’s brother Mark Weprin is a City Councilman and their father was Speaker of the State Assembly.

Paul Vallone was appointed referee on 111 properties scheduled for auction since 2007, according to PropertyShark data. The Vallone family is a fixture in Queens politics. Paul’s brother Peter Vallone is on the City Council and is currently running for Queens Borough President. Their father Peter Vallone Sr. was Speaker of the City Council.

Paul Vallone said political connections didn’t play a role in his appointments.

“That doesn’t have anything to do with it,” Vallone said. “When you have a law firm for over 80 years that goes back to my grandfather, my father, my brother and me -- we have a long proven track record that we can handle these files and every one of them has been handled immaculately.”

Little oversight in flawed system

WNYC reviewed hundreds of foreclosure case files and didn’t find any evidence of fraud – nothing like Sen. Sampson’s alleged theft of $440,000.

But there was evidence money has not been tracked closely.

Take the sale Vallone oversaw last November. After the sale he filed a report with the court showing the property sold for $140,000 more than the homeowner owed.

Referees are supposed to deposit any surplus funds with the county. But there was no record Vallone deposited any money.

After going back through the case at WNYC’s request, Vallone said there was a mistake in that report, which failed to show all the money the homeowner owed. Therefore, there actually was no surplus despite the report, he added. The bank’s attorney confirmed his account.

The case highlights a problem with the state court system: There is no system to track surplus funds and ensure a referee deposits such money with the County Clerk.

Despite the report Vallone filed in January, no one in the court system noticed the discrepancy or bothered to ask where the purported $140,000 surplus went.

Vallone said he will file an amended report with the court as soon as possible.

In recent weeks, Queens and Brooklyn have both started internally tracking cases where there is a surplus, court officials said.

The state court system also doesn’t track the appointment of referees. Information service PropertyShark does – but it’s not easy.

“We actually do have a process where we manually go through local newspapers, clip it and manually enter data from legal notices,” said Nancy Jorisch, a senior data analyst with the firm.

More than 2,500 attorneys received at least one appointment over the past six years to referee a scheduled sale, according to the firm’s data. Of those, about 70 handled a third of the 17,200 cases.

Reporting contributed by Joe Geoghan and Steven Melendez.