Two Long Island attorneys have been charged by a grand jury with creating a "short sale" mortgage fraud scheme in which they allegedly bilked Queens homeowners, mortgage lenders and home buyers out of more than $1 million.
The attorneys, Kenneth Schwartz, 64, of Huntington, and Helene Stetch, 50, of Lindenhurst, created "a financial nightmare for the buyers and sellers of nearly half a dozen Queens properties," Queens District Attorney Richard A. Brown said in a statement Friday.
According to the charges, Schwartz's Carle Place law firm represented sellers and lenders, and sometimes buyers, in the sale of five houses in Queens County between October 2008 and May 2010. In each transaction, the seller was behind on the mortgages and sought to sell the property in a short sale to avoid foreclosure.
Often, the victims only realized something was wrong when foreclosure notices for pre-existing mortgages were served months after the supposed short sale closings, which were believed to have been approved by the financial institutions who owned the mortgages, but often weren't, prosecutors said.
"In one instance, it is alleged that the defendants arranged for only a portion of a homeowner's debt to be paid off while retaining a major portion of the mortgage proceeds for themselves and others," Brown said. "The property eventually went into mortgage default."
Schwartz and Stetch, who worked at the law firm until she was fired in mid-2010, were arraigned Thursday.
Both are charged with six counts of second-degree grand larceny, one count of first-degree criminal possession of stolen property, six counts of second-degree criminal possession of stolen property, two counts of third-degree grand larceny, two counts of third-degree criminal possession of stolen property, one count of fourth-degree grand larceny and one count of fourth-degree criminal possession of stolen property.
Stetch was also charged with four counts of second-degree criminal possession of a forged instrument, three counts of first-degree falsifying business records and one count of first-degree scheme to defraud.
Schwartz and Stetch both pleaded not guilty and were ordered released without bail. They are scheduled to return to court July 7.
Schwartz's attorney, Richard Rehbock of Jericho, said his client wasn't involved in or aware of the bogus short sales that Stetch carried out while working in his office.
"This is a case where a rather prominent lawyer has a quite extensive real estate law practice, and hired a lawyer who, unbeknownst to him, was manufacturing sham real estate transactions," Rehbock said, adding that Stetch was fired when Schwartz began to notice irregularities, including forged checks.
"It was Mr. Schwartz who went to the police when he uncovered this problem," the attorney said.
Attempts to reach Stetch's lawyer were unsuccessful Friday.