FOR IMMEDIATE RELEASE:
May 20, 2002

FOR FURTHER INFORMATION CONTACT:
Genene W. Morris      (973)504-6327

NEWARK - Attorney General David Samson has filed suit against an elaborate network of at least eight companies and 13 individuals that carried out a massive predatory lending scheme that left low-income, minority consumers, who were lured with the promise of home ownership, with broken promises and overwhelming debt.

"Our case is the culmination of an exhaustive investigation that uncovered the activities of this vast network that was built on a web of lies and deceit," Attorney General Samson said. "The defendants involved in the scheme held themselves out as real estate agents, lawyers, loan officers and appraisers whose sole interest was to lead low-income consumers down the path to home ownership. Instead, they represented their own selfish interest of monetary gain and steered trusting consumers down the road to ruin."

The State's suit, which also includes as co-plaintiffs Division of Consumer Affairs' Acting Director Reni Erdos and Division on Civil Rights' Acting Director Jeffrey Burstein, alleges the defendants engaged in a series of unlawful predatory lending activities that violated New Jersey's Consumer Fraud Act and Law Against Discrimination.

Predatory loans target vulnerable consumers - particularly the elderly, the poor, the uneducated and minorities. In this case, the defendants allegedly targeted low-income minorities and used deception and high-pressure sales tactics to induce their victims into buying dilapidated homes in serious need of repair. The complaint also alleges that the defendants falsified documents used to obtain guaranteed financing by the U.S. Department of Housing and Urban Development ("HUD"), even though they knew the consumers could not afford the payments or the properties were not worth the amount of the mortgage. In fact, of the approximately 150 HUD insured loans involving Neighborhood Mortgage, EON, NPG, Homebuying and/or PCM, approximately 88 percent of the borrowers and co-borrowers were black. Other ethnic minorities accounted for approximately 8 percent of the remaining borrowers and co-borrowers. The State's case also alleges that falsified and inaccurate appraisals were used to carry out a land flipping scheme.

The State's 33-count complaint, filed in Essex County Superior Court, names as defendants:

• EON Institute Inc. ("EON"), formerly of 695 Bloomfield Ave., Montclair;
  
  
• Neighborhood Properties Group, LLC ("Neighborhood Properties"), formerly of 493 and 695 Bloomfield Ave., Montclair;
  
  
• Neighborhood Financial Center, ("NFC"), formerly of 493 and 695 Bloomfield Ave., Montclair;
  
  
• Neighborhood Mortgage Bankers, Inc., ("Neighborhood Mortgage"), sometimes known as Neighborhood Holdings LLC, 139 North Central Ave., Valley Stream, N.Y., doing business as Neighborhood Mortgage Corporation in New Jersey, formerly of 695 Bloomfield Ave., Montclair;
  
  
• Port Abstract, Inc., ("Port Abstract"), 600 Old Country Road, Garden City, N.Y.;
  
  
• Homebuying Center of America, LLC ("Homebuying Center"), formerly of 586 Central Ave., Suite 3, East Orange;
  
  
• People's Choice Mortgage, ("PCM"), 3301 Route 66, Building B, 2nd Floor, Neptune;
  
  
• Tri-state Residential Appraisers, Inc., 822 Broadway, Suite 1, Bayonne;
  
  
• Barry C. Fauntleroy , a.k.a. Christopher B. Fauntleroy ("Fauntleroy"), formerly of 6 Cedar Lane, Mendham, president of NPG and EON;
  
  
• Devon Bowie ("Bowie"), 66 Tilrose Ave., Malvern, N.Y., registered agent of NPG and President of Neighborhood Mortgage;
  
  
• Jeffrey Givens ("J. Givens"), 350 Park Ave., Newark, held himself out to consumers as a sales representative and the sales manager for NPG and EON;
  
  
• Kelly Givens ("K. Givens"), 350 Park Ave., Newark, held herself out to consumers as a sales representative for NPG and EON;
  
  
• Shelly Hawkins ("Hawkins"), 110 Norwood St., Newark, held herself out as an agent and sales representative for NPG and EON.
  
  
• Delia Jack ("Jack"), 357 N. Central Ave., Valley Stream, N.Y., represented herself to prospective buyers as a salesperson for NPG and/or HBC;
  
  
• Peter S. Port ("Port"), 600 Old Country Road, Garden City, N.Y., is an investor in Fauntleroy's companies and settlement agent in many of the relevant transactions;
  
  
• Sean Mason ("Mason"), 19 Palmer St., Bloomfield, represented himself as both a salesperson for NPG and as an attorney in many of the relevant transactions;
  
  
• Valerie Marcano ("Marcano"), represented herself as an office manager/loan officer of NPG and Neighborhood Mortgage;
  
  
• Stacey Marrero ("Marrero"), 2780 Randall Ave., Bronx, N.Y., acted as a direct endorsement underwriter at Neighborhood Mortgage, approving loan applications that were sent to the U.S. Department of Housing and Urban Development ("HUD");
  
  
• The Estate of William Black ("Black"), deceased as of March 4, 2002, formerly of Denville. Black worked at Neighborhood Properties/Neighborhood Mortgage, played a major role in Homebuying Center and was a real estate agent at PCM.
  
  
• Larry Douglas ("Douglas"), 107 N. 16th St., East Orange, represented himself as a vice president and sales agent for HBC;
  
  
• Alexander Marcopul ("Marcopul"), 452 Ave. E, Bayonne, a New Jersey certified residential real estate appraiser and principal of Tri-State Residential Appraisers, Inc. Marcopul supplied the appraisals for some of the transactions that are the subject of the State's case.

Beginning in December 1998 when EON was first incorporated, EON, under Fauntleroy's leadership, began purchasing dilapidated properties primarily in Essex County from private lending institutions and at foreclosure sales. The complaint alleges that properties, which ranged in prices from $36,000 to $88,000, were quickly sold to unsuspecting consumers, sometimes the same day they were purchased. Based on the inflated appraisals, consumers paid as much as 200 percent more than what the defendants paid, although the properties were never fully renovated and remained dilapidated.

The suit also alleges that the defendants enticed minority consumers with advertisements placed in newspapers. For example, the complaint alleges, Neighborhood Properties and NFC placed an advertisement in the October 3, 1999, edition of the Star-Ledger, reading "Stop Paying Rent," and "Kiss Your Landlord Goodbye ... Forever" and promised "no closing costs," "low down payment" or "less than 3% down" and "newly renovated homes in Newark, Irvington, Hillside, the Oranges and Montclair."

It is also alleged that the defendants, however, failed to inform consumers that because the loans would be guaranteed by HUD, which guarantees financing should the consumer default on the loan, the consumers were required to provide a minimum down payment of 3 percent. It is also alleged that the defendants failed to tell consumers that the closing costs they purportedly did not have to pay were, in actuality, included as part of the mortgage amount to be financed and paid over time.

"This is one of the most egregious and far reaching frauds," Erdos said. "This scheme not only hurt consumers who bought homes from the defendants, but taxpayers whose dollars fund HUD-backed loans and communities that would have benefitted from the renovated and beautified properties."

"Not only was the defendants' scheme a violation of the State's consumer protection laws, our suit alleges the defendants also violated the State's Law Against Discrimination," Burstein said. "This was a fraud that targeted minorities on the basis of their race and/or national origin. The defendants gained their victims' trust and took advantage of it by lying to and deceiving them."

The complaint alleges that consumers who responded to the advertisements were often taken to see or given addresses to view fully renovated homes. To further the deception, the complaint alleges, Neighborhood Properties and other defendants involved in the sale of the properties used "before" and "after" pictures of properties allegedly renovated by them. Prospective buyers of the rundown homes were assured the properties would be renovated like the ones they had been shown.

The renovations, consumers were allegedly told, would be completed before the closing and would include new heating, electric, plumbing and roofing in working order. Also, the complaint alleges, the contract of sale used by the defendants promised consumers that if the defendants did not complete the necessary repairs before the closing, $2,000 would be put in an escrow account for the consumers until the repairs were complete. Furthermore, the defendants allegedly represented to certain consumers that if the repairs weren't complete, they would make the mortgage payments pending the completion of the repairs.

Upon closing on the properties, many purchasers discovered that there were electrical problems, gutters were coming off garages, walls were damaged by water leaks, furnaces did not function and other promised repairs were not made, the complaint alleges. Consumers also found that the $2,000 deposits promised to them were never made into escrow accounts on the consumers' behalf and, although the defendants represented to some consumers that they were making the mortgage payments, they rarely, if ever, made such payments.

As part of the scheme, the complaint alleges, consumers who wanted to get their own appraiser and/or attorney were allegedly told by the defendants involved in the sales that it would be expensive and unnecessary or that an attorney would be supplied by Neighborhood Properties, EON or Homebuying Center. In instances where an attorney was present at closing, the defendants failed to tell the consumers that the attorneys were representing the defendants, and in fact, sometimes had financial interests in the companies or were not licensed to practice law in New Jersey.

In many instances, the complaint alleges, the defendants told consumers of the closing the day before the actual closing, leaving the consumers with little or no time to think about one of the most important financial decisions they would ever make. Once the loans were processed and the closings took place, the complaint alleges, Neighborhood Mortgage and PCM rid themselves of the loans by reselling them to secondary lenders. HUD-backed loans carry no risk for these secondary loan providers because financing is guaranteed in the event the buyer defaults on the loan.

The defendants also engaged in acts that had the effect of deceiving HUD. For example, the complaint alleges, the defendants manufactured documents and submitted falsified appraisals that contained inflated valuations that claimed the homes were renovated and worth more than they actually were, and grossly misrepresented information provided by consumers in loan applications by inflating incomes and child support payments and falsifying financial "gifts" available to the consumers.

During the course of the investigation, consumers informed investigators that many of the signatures that appear on their loan documents, contracts and other documents were not theirs. Consumers also complained that the information on the documents was falsified and that, when shown certain documents, they were seeing many of them for the first time.

According to the complaint, consumers incurred significant expenses to make the properties habitable. As a result, some consumers have been unable to obtain certificates of occupancy necessary to live in the homes, while others have been unable to stay current with their mortgage obligations because of the expenses involved in making the necessary repairs.

"These defendants showed an utter lack of regard for the people they were purportedly helping and put their desire for profit above human decency," Erdos added. "They took what was to be a happy moment in a person's life and turned it into a devastating experience from which many of these consumers are still trying to recover."

The State's complaint seeks, among other things, to have a receiver appointed and to have the defendants:

• permanently enjoined from engaging in activities that violate the State's Consumer Fraud Act and Law Against Discrimination;
  
  
• pay restitution to any affected consumers; maximum civil penalties in the amount of $10,000 for each and every violation of the Consumer Fraud Act; punitive damages as well as compensation for pain and humiliation suffered by their victims; and
  
  
• pay the State's costs and attorneys' fees.

Deputy Attorneys General Ginger R. Provost and Donna Arons are handling this case for the State.