Property scam retold to court

It was a property flipping scam that brought together corrupt city officials who accepted payoffs to ignore dangerous housing code violations, a municipal court judge who served as the closing attorney and an unlicensed appraiser who went by the name of "Billy the Kid."

Yesterday, one of the architects of the scheme was in federal court to plead guilty to money laundering involving the fraudulent sale of run-down residential properties that were illegally rented to low-income families on federal assistance -- netting between $1 million to $2.5 million.

Michael Eliasof, 63, of Mahwah, once a top-producing real estate agent for Re/Max Property Center in Paramus, admitted orchestrating the sales of the houses in Paterson using phony paperwork in no-money-down subprime deals that quickly collapsed, leaving lenders holding worthless loans. Some of the properties were subsequently re-purchased and sold again through new bogus loans.

The scheme came to light in March, when several officials and caseworkers in Paterson's housing department were indicted on bribery and conspiracy charges for allegedly steering low-income tenants to properties managed by Eliasof, while agreeing to dismiss housing-code violations in return for thousands of dollars in payoffs.

According to the earlier indictment, Eliasof -- at the time identified only as an unnamed cooperating witness -- paid several housing workers to make tenant complaints "disappear." Rather than make repairs, they told him he could "apply a slap of paint" over the problem. Lead inspections were never made and others agreed to help dismiss legal actions pending against Eliasof's property management company in municipal court.

In court yesterday before U.S. District Judge Jose Linares in Newark, Eliasof waived indictment and pleaded guilty to one count of money laundering, standing calmly in a dark suit and glasses as he responded to questions by Assistant U.S. Attorney Kevin Walsh regarding the operation.

At the heart of the case were dilapidated, multi-family houses sold as "investment properties" to unqualified buyers who put down nothing more than their name. In return, they were told a management company would pay the mortgage, renovate the buildings and rent them to recipients of Section 8 housing benefits -- which provides federally subsidized apartments for low-income residents. The buyers supposedly would then receive a monthly stipend out of the proceeds.

In one sale, a house purchased for $35,000 was flipped two years later for $180,000, and then sold again two years later for $250,000. Two years later, it was sold at a loss of $177,000 and has more recently been flipped again for $315,000.

Law enforcement officials say dozens of properties were involved and little, if any, repairs were undertaken.

The deals were generally reached in a booth at the Forum Diner in Paramus, using mortgage applications that greatly misstated buyers' incomes and assets, according to court filings. Once a mortgage was approved, Eliasof and others involved in the plan would pay off the purchase price of a house, and pocket the difference. While Section 8 tenants were placed in apartments, many of the mortgages ultimately fell into default and collapsed in foreclosure. Eliasof said he and others would then arrange to resell some of the properties to other buyers they recruited.

The value of the properties were inflated far beyond their market worth by an unlicensed appraiser known to Eliasof and the others as "Billy the Kid," who was paid to create fictitious appraisal reports -- setting the property values to obtain higher mortgages from the banks.

The closing attorney and the appraiser were not named in court, identified only as unindicted co-conspirators by their initials -- W.C. and W.O. However, a separate civil suit filed in Passaic County Superior Court charges that William Colacino, an attorney who serves as the municipal court judge in Garfield, and William Ottaviano, an appraiser who has been accused in other civil cases of working without a license, conspired with Eliasof in the sham sale of five houses to a woman and two of her children.

In that complaint, the buyers said the properties they acquired were all over-appraised, lacked lead paint certifications and went into foreclosure after Eliasof's management company failed to make mortgage payments.

Eliasof yesterday admitted that "W.C." was a Garfield attorney who used his trust account to falsely show that buyers had the cash to qualify for mortgages, and prepared the closing documents, while transferring bank checks to the sellers into accounts that Eliasof himself controlled.

Colacino did not return calls to his office. Ottaviano could not be reached for comment. Federal prosecutors would not comment.

Eliasof's attorney, Michael Koribanics of Clifton, declined to discuss the case. Eliasof faces up to 10 years in prison when he is sentenced in February.