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Lindenhurst attorney sentenced in $2.3M home fraud scheme

A Long Island attorney was sentenced to up to 4 years in prison Wednesday after she pleaded guilty to making up to $2.3 million in transactions in fraudulent short sales of Queens homes, said Queens District Attorney Richard Brown.

Helene Stetch, 53, of Lindenhurst, was sentenced to 1 1/3 to 4 years in prison by Queens Supreme Court Justice Evelyn L. Braun several months after Stetch pleaded guilty to one count of first-degree criminal possession of stolen property and six counts of second-degree grand larceny on Jan. 9. Stetch received the same prison term on all counts, but the terms will be served concurrently.

Attorney Kenneth B. Schwartz, for whom Stetch worked, took a conditional plea of guilty to criminally facilitating fraudulent short selling of the homes, as well as disorderly conduct, the district attorney’s office said. If he complies with all the conditions, Schwartz can withdraw the misdemeanor plea and will be sentenced on the disorderly conduct violation to a one-year conditional discharge.

“The two defendants created a financial nightmare for the buyers and the sellers of nearly half a dozen Queens properties,” Brown said in a statement. “The victims in this case only discovered that something was amiss when foreclosure notices for the pre-existing mortgages were served several months after the supposed ‘short sale’ closings.”

Homeowners were deceived into selling their property, believing that the underlying mortgages would be satisfied, and buyers and new mortgage lenders were deceived into believing that the purchased properties were free and clear of prior encumbrances when, in fact, the mortgages were still outstanding. The district attorney’s office said the Queens houses “typically had a first and second lien holder, both of whom had to approve” the sale. Stetch went to closing without short sale approval from both lien holders, the district attorney said, and didn’t pay off underlying mortgages.

Schwartz’s law firm was the lender’s settlement agent, according to a news release from the district attorney, meaning the mortgage loans were wired into an attorney trust account in Schwartz’s name. Schwartz and Stetch were the sole authorized signatories on the account.

Barry Zone of Manhattan, Stetch’s attorney, said she never benefitted from the crime but served as the attorney facilitating the transactions.

“She’s accepted responsibility for her part,” Zone said. “Unfortunately, she was an associate in a law firm and there were multiple people that were involved . . . Of course, she took the brunt of the hit because she was the responsible attorney, but, make no mistake, this was not her doing alone.”

Reached for comment, Schwartz said he “fired Stetch for intentional wrongdoing on April 23, 2010, and reported her actions to several avenues of law enforcement.”

Prosecutors said the transactions concerned several properties that were being sold by financially distressed owners between 2008 and 2010, during the height of the national housing mortgage crisis.

“Stetch represented the property sellers and engaged in short-sale negotiations with the goal of persuading the underlying lien holders to accept less than the outstanding mortgage to discharge the debt and the lien,” Brown’s statement said. “In all instances, Stetch proceeded to closing without the short sale approval from both lien holders of the property, and although having proceeded with a sale, Stetch failed to pay off the underlying mortgages. In fact, she continued short sale negotiations — ranging from a few months to more than a year — with the lien holders as if no sale had yet occurred.”

CORRECTION: A previous version of this story misstated the number of prosecutions involving the two attorneys, omitted the charges to which Schwartz took a conditional plea and failed to include a response from Schwartz.

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