An apartment loan that investigators said fraudulently cost brokerage firm JLL millions of dollars comes as multifamily lending giants Fannie Mae and Freddie Mac look to take further steps to prevent fraud.

Three real estate investors pleaded guilty this month to engaging in a multiyear conspiracy to obtain the $74 million Fannie Mae loan on a Cincinnati property, according to an Aug. 1 statement by the U.S. Department of Justice.

The loan was described by JLL in its second-quarter earnings report as the cause of an $18 million loss. JLL later confirmed to CoStar News that the loan was the same tied to the Cincinnati apartment complex. Fannie Mae declined to comment.

Fredrick Schulman, 72, of New York, and Chaim “Eli” Puretz, 29, of New Jersey, pleaded guilty to one count of conspiracy to commit wire fraud affecting a financial institution, according to the DOJ. Moshe “Mark” Silber, 34, of New York, pleaded guilty to one count of conspiracy to commit wire fraud affecting a financial institution.

The three also pleaded guilty to defrauding lenders on another loan originated by JPMorgan Chase on a commercial property in Troy, Michigan, the DOJ said.

The occurrence of such schemes comes as government-backed finance firms Fannie Mae and Freddie Mac have been moving toward tighter lending standards for apartment buildings to avoid fraud, according to industry professionals. As long as a year ago, they "were moving very quickly in ways that we've never seen them move before," said Willy Walker, chairman and CEO of Walker & Dunlop, on an earnings conference call on Thursday.

The new regulations are expected to require lenders to independently verify financial information from borrowers seeking loans for multifamily properties, the Wall Street Journal reported last week. Lenders may also be required to conduct more thorough due diligence on the appraised value of properties, potentially including assessments of a property’s financial performance.

JLL originated the largest loan involved in the schemes cited by the DOJ, according to public loan documents in Hamilton County, Ohio, where the Cincinnati property is located.

In March 2019, the defendants acquired the 976-unit Williamsburg of Cincinnati Apartments & Townhomes for $70 million, according to the DOJ. JLL and Fannie Mae funded a loan in the amount of $74.25 million for the purchase, the agency said.

However, Silber, Schulman, and other co-conspirators used a stolen identity to present JLL and Fannie Mae with a larger purchase and sale contract for $95.85 million and other fraudulent documents, according to the DOJ.

On March 8, 2019, two closings were performed, one for the true $70 million sale price and another for the fraudulent $95.85 million sale price presented to the lenders, according to the DOJ.

In its earnings statement, JLL mentioned a Fannie Mae loan on which it was a victim of fraud. "Both JLL and Fannie Mae were victims of fraud on this loan," Karen Brennan, JLL's chief financial officer, said on the company’s earnings conference call. "The borrower has pled guilty and is awaiting sentencing.”

JLL took the $18 million loss in the quarter tied to the loan, Brennan said, an amount that more than offset gains from revenue growth and cost management actions.

“A receiver has been appointed and we're intending to stabilize the property, including some occupancy improvements before the asset is sold,” she said.

The loan is more than 90 days delinquent, according to CoStar data. Fannie Mae securitized the debt in an investment trust called Multifamily Connecticut Avenue Securities 2020-01.

The property was appraised at $99 million when the loan was originated in 2019, according to CoStar data. It was reappraised in March at $34 million.

As for the Michigan case, Silber, Schulman and Puretz acquired Troy Technology Park in September 2020 for $42.7 million, according to the DOJ. However, to support an inflated purchase price of $70 million, Puretz and his co-conspirators were said to have submitted to the lender and appraiser a fraudulent letter of intent to purchase the property from another party for $68.8 million.

JPMorgan lent $45 million on that purchase of which a portion was securitized in bond deal JPMC 2020-B20, CoStar data shows. CoStar News reached out to JPMorgan for comment but it didn't immediately respond.

The Troy Technology Park loan was transferred to special servicing in December “due to mortgage fraud and remains past due for the December 2023 payment,” according to the monthly July bondholder report for the bond deal. The special servicer completed a foreclosure of the property in May.

Silber, Schulman and Puretz are scheduled to be sentenced on Dec. 3. Each faces a maximum penalty of five years in prison, according to the DOJ. Attempts to reach the three defendants through their previous companies were unsuccessful.