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I don't know about you, but I just have no sympathy for so-called sophisticated lenders who lose a bundle to conmen who have outwitted them - and later outwitted themselves.

Just such an event cropped up the other week in New York City.  Near Broadway at 89th Street, to be exact.

Seems an individual identified in New York County Courthouse records as Mustafa Baskoy purchased a seven-room, 1,837-square-foot apartment with 10½-foot ceilings on the ninth floor of a building facing Broadway at 89th Street for $1.66 million.

Row Houses on S.Side of W. 89th St., NYC

That was in July 2007 when the housing market was still hot and values were soaring daily.  Baskoy bought the apartment from an unnamed individual who had bought it earlier that same day for $840,000.

So the seller made a 100 percent profit on the deal in less than 24 hours.

See if you can follow the scenario now:

To close the deal, Baskoy goes to a local branch of  Washington Mutual, which was still alive at that time, and wrangles a mortgage loan for $1.5 million.  Baskoy himself only puts down 10 percent of the purchase price, or $166,000 in cash.

Later that day, Baskoy does a second deal in the same building for a smaller apartment priced at $2.45 million.

Two months later, Baskoy receives a $375,000 home equity loan from Wells Fargo on the seven-room apartment.  JP MorganChase at this time has taken over Washington Mutual.
Now at $1.66 million, the seven-room apartment price equates to $904 per square foot - considered a great deal for the neighborhood where the apartment is located.

At this point, Baskoy obviously has visions of flipping the apartment to a large developer and making out as well as the individual who sold him the unit.  But soon he learns he has been sold a lemon.

You see, Apartment 9D is occupied by tenants protected by New York State rent regulations, since the building was converted to a condo in 1986.

That means the tenants can't be evicted.  For a developer planning a mega project on the site, that fact alone would quickly kill any pending deal.

 It also means the value of the building is far less than the $1.66 million Baskoy paid. 

Now Baskoy realizes he has been had and quickly stops making his mortgage loan payments and monthly fees for maintenance in the apartment building.  Those maintenance fees ring up to a total $20,000.

Baskoy is nowhere to be found.

Epilogue:  Wells Fargo is stuck with an unpaid $375,000 home equity loan. JPMorganChase has to write off a bad loan for $1.5 million.

The apartment is listed for a minimum price of $1.67 million at a public auction at the New York County Courthouse but there are no bidders.  JPMorganChase takes back the apartment.
 
There are no further details at this time on Baskoy's purchase of the second apartment for $2.45 million.

Josh Barbanel of The New York Times interviewed Ronald J. Gold, a lawyer who represents the condo board. 

"How this guy was able to get his mortgage and get his secondary financing and then buy a second apartment is a mystery," Gold told Barbanel.

I mentioned this deal to my old friend Moishe Pipuk who always loves to dissect bizarre transactions such as this one.

"No mystery to me," Pipuk speaks up.  "The guy obviously either knew a rogue lender or lenders at the banks he went to, or else he slipped them some green stuff to make the mortgage loan app legit." 

Pipuk adds, "That happened a lot in those days and may even be happening still today."

Runaway lending - a good illustration.

And that's the way I see it - for now. 

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