JLL Faces $18M Loss Due to Multifamily Loan Fraud Scheme

In the second quarter of 2024, JLL (Jones Lang LaSalle) faced a significant financial setback due to a multifamily loan fraud scheme that resulted in an $18 million loss. The fraudulent activity involved a $74 million Fannie Mae loan for a Cincinnati apartment complex, which was orchestrated by a group of investors using deceitful tactics. According to the U.S. Department of Justice (DOJ), the investors—Frederick Shulman, Chaim "Eli" Puretz, and Moshe "Mark" Silber—pleaded guilty to one count of conspiracy to commit wire fraud affecting a financial institution on August 1, 2024.

The scheme involved the use of a stolen identity and an inflated purchase and sale contract, where the property was purchased for $70 million but was falsely stated as $96 million. JLL, which originated and sold the loan to Fannie Mae in 2019, discovered the fraud after the loan went into default. The $18 million loss reported by JLL includes expenses related to buying back the loan, which is now under the management of a receiver as the company works to stabilize the property before selling it.

JLL’s Chief Financial Officer, Karen Brennan, addressed the situation during the company’s latest earnings call, emphasizing that both JLL and Fannie Mae were victims of the fraudulent scheme. She also noted that JLL is closely monitoring other smaller loans in its portfolio that have potential fraud issues, though these represent less than half of 1% of the overall Fannie and Freddie portfolio.

In response to the increasing incidence of multifamily loan fraud, Freddie Mac and Fannie Mae are planning to tighten financial reporting requirements for lenders and brokers. The proposed measures, expected to be implemented by the end of the summer, would require lenders to take additional steps to verify the financial information provided by borrowers, including confirming financial sources and thoroughly examining a property's appraised value. While these measures aim to prevent further fraud, they may also lead to increased costs and slower deal activity in the multifamily sector.