|December 4, 2006: HUD fraud is old. Ditto for real estate scams. But mash them up
and you get hip happening white collar crime. The U.S. Department
of Housing and Urban Development (HUD) delivers the goods for
crooked house parties across the nation.
Agency overlords in Dee Cee know squat about folks funded on the
homefront. Sure, qualifying docs may be delivered. But docs are
easily doctored. Reputations are harder to fake. Local public
servants and finance seers should be savvy. Can the ideal and
cut to a chase. One involving frauds perped in the inner city
neighborhoods of Albany, New York by confessed real estate crook
Aaron R. Dare, acting with a cast of as-yet-unknown numbers. On
November 13th, Dare copped a plea to federal charges and agreed
to testify against his alleged conspirators. The charges relate
to Dare's more recent activities, which were prefigured by
Albany is the capital of New York State. A state government town.
A few census counts ago, Albany's population fell below 100,000
for the first time in over a century. Some blame Albany Mayor
Jerry Jennings. An old style boss in a one party (Democrat) town.
Though adept at cutting taxpayer backed development deals and
quashing dissent, Jennings is a flop at crime control. Morgan
Quitno Press, which rates American cities for safety, ranks
Albany 312th among 371 communities. During the multi terms of
Mayor Jennings the leadership of the Albany Police Department
has been a revolving door. Scandals have rocked the cop shop.
Others say don't blame hoary machine pols and crime for Albany's
shrinkage. The real culprit is the siren song of the suburbs. Or
the overall decline of post-industrial, urban upstate New York.
(Though unlike other upstate cities Albany has solid employment,
due to the presence of state government.) Whoever or whatever,
one thing is clear. Large sections of north and south Albany
suffer from a long time case of inner city slum syndrome.
Manifested in poverty, drug trade, gangs, violence, decayed
buildings, moon crater streets, and grocery stores specializing
in past-date milk and 24/7 hoodies.
Aaron Dare, who was born and raised in inner city Albany, claimed
to have a cure for the nabes. The Albany based Urban League of
Northeastern New York elected Dare CEO in 1996. Dare's
background was in banking, and that buzz bizz of the 90's--
telecommunications. At 26, Dare was a rising star on the national
urban policy scene. Admired by major political figures both
Democrat and Republican. Including former HUD head Andrew Cuomo
and New York Governor George Pataki. KeyCorp in Cleveland, Ohio,
the parent company of KeyBank N.A., a major banking player
in the Capital Region, named Aaron Dare to its Albany board of
directors in 1998. Dare's mission was to "work with other local
community leaders" and advise KeyCorp on its "image, initiatives
and performance in the local marketplace".*
The Urban League, under Aaron Dare's leadership, shifted its
focus from job training and charitable programs to real estate
development. Dare was fluent in welfare reform and revitalization
speak. Touting investment partnerships between the private and
public sectors. Meaning: speculative ventures launched by private
for-profit or non-profit entities, advanced by the power of
governments, and subsidized and/or guaranteed by the public. The
return for taxpayers? Monies that might go to low class lazeniks
relaxing on the dole would instead go to upscale entrepreneurs
relaxing on subsidized business ventures. The justification
being that said ventures would provide employment and housing
opportunities for inner city residents. Thereby curing the
welfare habit, instilling pride of home ownership, and
Alas. The cure merely shifted the welfare habit to a tonier class
of people. Many of whom have been perping a national epidemic of
public funded fiascos and frauds. Ones which leave already shaky
neighborhoods down for the count.
In Albany, Aaron Dare started his ball rolling with Gateway
Commons, a plan for a massive commercial and retail hub in Arbor
Hill, an inner city neighborhood in north Albany. The project was
advanced by the Urban League and a local bank (Cohoes Savings
Bank) in a for-profit partnership called The Commons LLC. Among
other things, Gateway Commons was to include a telemarketing
center for National Finance Corporation (NFC) a subprime mortgage
and refi company based in nearby Saratoga County. NFC, via its
subsidiary Millennium Technology Solutions, would also be
involved in the development process.
Millions of dollars in economic incentives sweetened the Gateway
Commons deal. The city of Albany's Industrial Development Agency
(IDA) obtained bonding for the project, allowing it to receive
low interest loans, property tax abatements, and sales tax
exemptions on construction materials. The overall area was
designated an economic development zone, with discounted utility
rates and wage tax credits. Governor George Pataki and the State
Department of Labor, gifted NFC with a "Built On Pride" grant,
since the company would be hiring and training 300 inner city
residents as telemarketers. People who according to Aaron Dare,
were "on the unemployment or public assistance rolls."**
Though unsubsidized entry-level telemarketing jobs aren't
uncommon, not all provide training in how to pitch high interest,
extra fee, subprime mortgage loans to folks with poor credit.
The golden welfare-to-work opportunity never materialized. In
late 1998 the Urban League was 1.3 million dollars in debt.
By 2000, despite all the government subsidies and competitive
edges, the Gateway Commons project had collapsed into a cloud of
ethical sludge, mismanagement, and bad bidness karma. The
Commons, LLC, and the NFC had creditors baying at their heels.
NFC was being sued by The Commons. NFC founder David Silipigno
had rerouted loan payments owed Bear Stearns & Co into NFC
operating expenses. Criminal charges resulted. Aaron Dare had
rerouted state and federal withholding taxes of Urban League
employees into the League's operating expenses. No charges
Eventually, all the Urban League employees were fired when the
venerable organization was sucked under by tax liens and debt.
More public dollars followed it down. The City of Albany loaned
the League $180,000 of HUD Community Development Block Grant
(CDBG) funds which went to consulting fees and payroll costs,
and ultimately bought Gateway Commons Center (the unused NFC
telemarketing facility) from an Urban League subsidiary. Paying
2.1 million dollars and turning the building into a public safety
center for the police and fire departments.
In late 2001, New York Attorney General Eliot Spitzer issued a
stern fatwa about the collapse of the Urban League, the out-to-
lunch oversight of its board of directors (a number of whom were
prominent, well-heeled Capital Region old boys of the political
and business variety) and the mismanagement and ethical
shortcomings of Aaron Dare. Yet Spitzer declared nobody did
anything really illegal, nor would it be worthwhile to hold Aaron
Dare or any member of the board financially liable. But Spitzer
did command Dare not to darken charity doors for 10 years.
That and a nickel...
Aaron Dare was already busy with less charitable projects. The
federal charges to which Dare recently pleaded stem from those
next big things.
As the Urban League was imploding, Aaron Dare was established a
string of state registered real estate entities. Many with
"emerge" in their titles. There was Emerge Real Properties LLC,
Emerge Construction, Emerge Historic Residential Community, I,
II, and III. This time Dare's target was Albany's south side. In
early 2001, Dare and Emerge bought 39 residential buildings,
covering blocks of a downtown nabe called The Pastures, aka
Historic Pastures. Dare also bought a brewery that had been
converted into residences, plus a similarly converted schoolhouse
in nearby Schenectady. All were designated "historic". Hence
eligible for state and federal tax credits. Dare bought the
properties with close to $8 million in loans from AMI Capital
Inc., a Maryland based mortgage lender. AMI in turn, funded the
loans via a warehouse lender in Columbus, Ohio.
Warehouse lenders are typically commercial banks. They extend
lines of credit to mortgage lenders, thereby allowing them to
make larger loans. The warehouse lender retains an interest in
the loans until the mortgage lender sells them as part of a
pool of loans, to investor companies. These companies move the
mortgage loans onto the secondary market, to be sold as
securities to individual or corporate investors. The warehouse
lender accessed by AMI on behalf of the Emerge loans isn't
identified in the federal complaint against Aaron Dare.
AMI, which was purchased by Wachovia Bank in late 2003,
specializes in originating and servicing multi-family mortgage
financing. Through Fannie Mae (a government sponsored enterprise
active on the secondary mortgage market) and its Delegated
Underwriting and Servicing program, as well as through the
insured lending program of the Federal Housing Administration
(FHA). The FHA is a sub agency of HUD. The AMI loans given Aaron
Dare and Emerge were FHA insured. As in, covered by taxpayers.
The Pastures properties obtained by Dare with those loans
comprised a sizable piece of a pivotal section of Albany's south
end. During the period when Dare applied for, and received, his
AMI/HUD loans the City of Albany, as personified by various
public officials and agencies, along with assorted for-profit
and non-profit real estate interests, was actively involved in
ambitious public funded and financed efforts to revitalize the
south end. Including efforts assisted by HUD. Either no one gave
HUD a heads-up about Dare, or the agency wasn't listening. How
else to explain HUD buying Dare's lies about his qualifications
and financial worth?
By his own admittance, Dare submitted false information to obtain
the AMI/HUD loans. Dummy docs re Dare's financial worth were
allegedly supplied by Berne A. Watkins, who owned all the Emerge
properties, under the names Brandon R.E. Inc., The Pastures of
Albany, LLC. and Franklin School Properties, LLC. Watkins hails
from the suburban town of Bethlehem (which abuts Albany's south
end) and is a prominent Capital Region developer and tech
entrepreneur. One of his ventures is diagnostic software linked
to electronic stethoscopes, another is invisible electronic dog
collars. Watkins has been indicted on 5 federal counts based on
alleged transactions with Dare. Including supplying a fake
promissory note showing Emerge as being owed $1.8 million by a
Watkins company in the city of Troy in nearby Rensselaer County.
Watkins and Dare allegedly colluded throughout the entire deal.
Hiding their financial relationship and fraudulently inflating
the price of the properties they traded from $6 million to $8.5
million. With Watkins allegedly skimming the main profit.
In 2002, shortly after "purchasing" the Emerge properties,
Aaron Dare was selling them. Robert Bove, a real estate player
operating under different entity names at a variety of locations,
was supposedly interested in buying The Pastures. The law caught
up with Bove for a real estate scam perped in Rensselaer County.
The deal fell through. Services in Dare's properties had ceased,
including those housing subsidized, elderly tenants. Security
deposits and condo association fees were rerouted into Dare's
pockets. Taxes and creditors went unpaid. The AMI/HUD loans
became delinquent. HUD tried to find Dare. No luck. He was
rumored to be in New York City. In early 2003 Dare and Emerge
defaulted on the AMI loans. In 2004 HUD auctioned off the Emerge
properties and taxpayers picked up the difference between reality
Surprise surprise. Aaron Dare wasn't in NYC. Between 2003 and
2005 Dare and an "unnamed conspirator" pulled off 31 (known)
mortgage frauds on residential properties "in and about the City
of Albany". Along with the Emerge activities, these frauds figure
into the federal charges to which Aaron Dare has pleaded guilty.
In late 2005, the FBI raided the downtown Albany real estate
office of Dare and his police officer partner, the late Kenneth
P. Wilcox. Officer Wilcox died in a car accident in the Spring
The mortgage frauds to which Dare confessed utilized straw
buyers, recruited by Dare's unidentified conspirator. Supposedly,
some were street criminals. Straw buyers are low on the ladder of
mortgage fraud. A white collar crime which according to the FBI,
has become epidemic. Mortgage fraud is typically committed by
rings of real estate professionals. At times involving collusion
as high up as the lending level. Even when collusion isn't a
factor, the immense profits which flow from the sale of mortgage
loans (including high interest and fee rich subprime loans) on
the secondary investment market have made some lenders sloppy
about underwriting practices.
A common form of mortgage fraud is "flipping". Not all flipping
is illegal. In the fraudulent variety, straw buyers are supplied
with fake proof of employment and finances by collusive realtors,
mortgage brokers, sellers, etc. The straw folk take out mortgage
loans they have no intention of repaying. The properties they
"buy" have often been acquired cheap by the sellers, who inflate
the value of the properties via cooked appraisals. Sometimes by
as much as 500%. Hence the loans straw buyers receive are for
much more than the properties are worth. Everyone in the ring
takes their cut and walks away. The loan goes into default.
While momentarily goosing property values (and eventually,
local property taxes) mortgage fraud and its aftermath ends up
speeding neighborhood decline and depressing values. In troubled
or borderline neighborhoods, where mortgage fraud is most
prevalent, taxpayers frequently pick up the tag.
In the mortgage frauds perped by Aaron Dare and his unnamed
conspirator, the lenders were BNC Mortgage and Fremont Investment
and Loan. Both based in California, both highly active national
subprime lenders. BNC is a subsidiary of Lehman Brothers Bancorp.
Both BNC and Fremont have had other bad experiences in New York
State. In 2005, both were defrauded in a Nassau County case
involving properties in that county and in Brooklyn. And Fremont,
along with several other mortgage lenders, was recently utilized
by a ring made up of overlapping groups of real estate
professionals from upstate and downstate New York and northern
New Jersey. This ring (the Sandella Ring) targeted Suffolk County
and wide swaths of Brooklyn. Its most notorious member was
Emmanuel "Toto" Constant. Formerly of Haiti.
In Haiti, Emmanuel Constant headed the Front for the Advancement
and Progress of Haiti (FRAPH). FRAPH was accused of hundreds of
murders, rapes and kidnappings. After President Jean-Bertrand
Aristide returned to power in 1994, Emmanuel Constant fled to
New York City. The Clinton administration declined to deport him
to Haiti. The Bush admin hasn't seen fit to do so either. When
Constant was arrested for alleged mortgage fraud activities in
2006, he'd been working as a licensed mortgage broker in Suffolk
County. According to another member of the alleged ring, who was
caught bragging on tape during the investigation, their frauds in
Brooklyn's low income neighborhoods "changed the whole market".
In Albany, Aaron Dare is being more modest.
On November 13th, Dare copped a plea to three federal charges. As
result of doing so, plus agreeing to testify about his alleged
conspirators, Dare will most likely receive a sentence of roughly
4 years in jail. Rather than the several decades allowed by law.
Fines and mandatory restitution of $750,000 will be levied.
Taxpayers, creditors, and those living in or near the properties
Dare exploited can expect a check any day now. But can they
expect more revelations re the whole ball of wax that greased
The charges to which Dare pleaded were contained in a complaint
rather than an indictment. Pleading prior to indictment has
advantages for both prosecution and defense. It saves money and
time and is a done deal for the prosecution. Pleading to a
complaint also reduces the outflow of information. Since actual
indictments include everything the prosecution can possibly
throw at a defendant-- not just charges to which the defendant
agrees to plead.
Still, as hoary fortune cookie says: when rat squeals, alleged
and as-yet-unknown conspirators often spill retaliatory beans.
Carola Von Hoffmannstahl-Solomonoff
*KeyCorp appoints Dare to district board of directors, The
Business Review (Albany), 03/09/98
**Economic incentive package lures call center to Arbor Hill,
William Tuthill, The Business Review (Albany) 11/13/98
Sources include but are not limited to:
City of Albany NY Website, "South End Revitalization," 11/25/06
"Loans illegally obtained, federal charges allege,"
United States of America v. Aaron Dare, United States District
Court, Northern District of New York, Case No.06-CR-429, Filed
"Dare enters guilty plea," Brendon L. Lyons, Albany Times Union,
United States of America v. Aaron Dare, Criminal Minutes: Entry
Of Plea To An Indictment/Information, United States District
Court, Northern District of New York, Case No.06-CR-429, 11/13/06
"Ex-Haitian military boss dogged by crime," Alfonso A. Castillo,
Newsday, Melville, N.Y., 07/08/06
The People Of The State Of New York against Louis Sandella,
Michael Sandela, et al, Attorney General Indictment No. 2899/2006
Federal Bureau of Investigation Privacy Impact Assessment (PIA),
Department of Justice/Federal Bureau of Investigation, Mortgage
Fraud-Property Flipping Database, 12/28/05
"Wachovia Acquires Remaining Stake in Agency Multifamily Mortgage
Lender AMI Capital," Carolina Newswire, 11/28/03
"A chastened Silipigno vows collapse of company will not be his
life story," Barbara Pinkney, The Business Review (Albany)
Statement By Attorney General Eliot Spitzer Regarding The Urban
League Of Northeaster New York, Press Release, 09/27/01
"HUD studying agency's records," Darryl Campagna, Albany Times
"Two suits totaling $2.9M filed against National Finance Corp.,"
Barbara Pinckney, The Business Review (Albany) 01/14/00
"IDA eyed to aid Albany retail plan," Deborah Moore, The Business
Review (Albany) 09/25/98
"The Secondary Mortgage Market, Problems of Predatory Subprime
Originators and Servicers," John E. Lind, Ph.D., Caniccor,
"Warehouse Lending and Mortgage Banking," response to Google
Answers by www.loanuniverse.com