Investigation Shows Politicians Profit off Foreclosure Sales

Court appointments to handle auctions go to insiders

Monday, June 17, 2013


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.


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Comments [5]

Dee Marie from Nassau/Suffolk

Yea sure. No conflict of interest, and just few bucks...

See....Concord Landscapers, Inc. v. Pincus, 41 AD 2d 759 - NY: Appellate Div., 2nd Dept. 1973

Where the judge has heard that one before...

"It seems quite apparent that the levy of execution against the real property (more particularly the residences) of small debtors is taking place in situations in which the debtors have been misled by high pressure sales tactics into entering the transaction (which gave rise to the judgment) in the first place, and in which assignees of the sales creditors are frequently the ones who take the steps (sometimes unknown to the original assignors) to sell (on levy of execution) the debtor's residence. This often occurs when the debtor's equity in his home is substantial. By the use of technically valid legal steps, and the sale for which CPLR 5236 provides, the debtor's home is sold at public auction for but a fraction of its worth. The result is a serious miscarriage of justice which has apparently reached high proportions in some parts of the state. The geographical area from which this writer has heard the complaint most often is Long Island (Suffolk and more particularly Nassau counties)." (See, too, the discussion of Mr. Justice Lynde in Lee v. Community Capital Corp., 67 Misc 2d 699, 701-702.) While certain devices are available at present to protect the abused judgment debtor in this situation (see Siegel, supra, under the heading "Presently Available Devices to Protect the Abused Judgment Debtor"; Lee v. Community Capital Corp., supra, p. 702), their effectiveness may be thwarted by the "victim's * * * lack of sophistication and diligence in utilizing the aid of counsel" (Lee v. Community Capital Corp., supra, p. 702). However, it is for the Legislature to alleviate the situation by appropriate action, including but not limited to appropriate amendments to section 489 of the Judiciary Law and to CPLR 5236, which deals with the sale of a judgment debtor's realty. (See Siegel, supra, under the above-mentioned heading ["Presently Available Devices," etc.]; Lee v. Community Capital Corp., supra, p. 703.)

Do you find it strange that Suffolk doesn't track foreclosures?

Nov. 25 2013 08:25 AM
Christina from Atlanta, Georgia

It seems like there has been a huge uptick in various mortgage fraud ventures, whether it's from individuals or from huge banks. I'd be interested in hearing a different take on what happened here- namely I'd like to hear an explanation with documentation and evidence to back up what Paul Vallone says happened with the $140,000 surplus on that home. - Christina,

Jul. 08 2013 05:17 PM
Kenneth from New York

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Jul. 01 2013 11:00 PM

I fail to understand how making $750 per foreclosure is a red flag to these reporters that indicates that foreclosure attorneys are unjustly "profiting" from foreclosures. They are providing a service to the mortgage companies, and doing so for a very small fee relative to the amount of hours of work each foreclosure requires to process. I also fail to understand how these reporters don't realize that all law firms have specialties as their practice areas, which means that we will see the same lawyers often within a type of legal need. I can attend landlord-tenant court and see one attorney on any given day represent 10 apartment complexes that are separately owned, and seemingly never sit down. He gets all of their business because L/T court is one of his niches, he is good at what he does, and these apartment complexes have multiple eviction cases to handle every week. The same will hold true for these foreclosure attorneys who are getting 1/3 of the cases. The mortgage company hires them because it is their niche, they are good at what they do, and a big mortgage company will have many foreclosures to pursue. That mortgage company will hire one law firm per state to handle them; or, will hire a law firm that is licensed in several states to handle all of their foreclosures in their respective states simply for the sake of efficiency.

Jun. 19 2013 07:23 PM
Vinny Racaniello from White Plains, NY

Wow! As an avid listener and fan of WNYC I've never heard a more erroneous report in my life. I can totally relate to Mr. Vallone's sleepless night. As a title insurance professional with over 25 years of experience I can assure all the listeners that there's not a single lawyer or escrowee who doesn't take the matter of handling other people's money with the utmost of seriousness. Being put on the spot to have play Monday morning quarterback is extremely unfair, and as it turns out, Mr. Vallone did nothing illegal. I only wish WNYC would have said so in their report. When one considers the avalanche of foreclosure work that the legal and title industry has had to wade through in the last few years-time consuming, frustrating and thankless work-yet there has been only one instance of fraud, the real story is that there hasn't been much more.

Jun. 17 2013 09:13 AM

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