New York Court Orders Trump Pay Almost $400 Million in Fines for Fraudulent Real Estate Transactions

Last week, a New York court issued judgments against Donald J. Trump and his sons, asserting violation of state anti-fraud law in connection with several real estate mortgage loans. The judgments, which aggregate $355 million and may escalate to $454 Million or more, shocked Republicans and Democrats alike and stunned the national real estate community. It was immediately apparent that something was wildly wrong, since the Trump transactions were nothing unusual or remarkable for the real estate industry.

The case primarily involves applications for mortgage loans submitted by Trump entities to major federal banks. The state of New York claims that Trump, in connection with such loans, committed repeated fraudulent and illegal acts.

The judge acknowledges that common law fraud (also known as "misrepresentation") requires a finding of five elements: (1) A material statement of fact (not opinion), (2) falsity, (3) knowledge of the falsity, (4) justifiable reliance by the alleged victim, and (5) damages.

Although the judge apparently concludes that all of the elements have been proven, it is quite obvious that none, let alone all, of the required elements of fraud and misrepresentation was proven.

Material Statement of Fact: Most of the 92-page document relates to alleged false statements in so-called Statements of Financial Condition (SFCs), which were schedules of values allocated to various Trump properties.

Falsity: The Statements of Financial Condition were merely statements of opinion submitted by the proposed borrowers and guarantor(s) and, thus, were neither true nor false.

Knowledge of the Falsity: The proposed borrowers knew that the SFCs were schedules of opinions as to values, were subject to debate, and were neither true nor false.

Despite this, the judge ruled that Trump's statements of his properties' values concluding with "it has been my experience that no one knows more about the value of real estate than I do" were false and with knowledge that they were false.

The judge's findings do not provide any grounds for determining whether or not any such reliance was justified.

Valid justifiable reliance does not even appear to be possible:The Office of the Controller of the Currency (OCC) has promulgated laws and regulations prohibiting federally chartered banks from making large commercial mortgage loans without first securing an appraisal by an independent and state-licensed and/or state-certified appraiser, which appraisal must comply with additional applicable requirements. Reliance upon other valuations that deviate from the required appraisals is clearly not justified.

Valuations by the borrower or appraisers engaged by the borrower are subject to bias and conflicts of interest.

Reliance on such tainted valuations is unwarranted and unwise and unjustified.

The judge's findings contain evidence that valuations contained in the SFCs submitted by Trump entities were summarily reduced 50% by one of the lenders, which lender also reduced valuations submitted by similar borrowers in similar situations in similar amounts.

Such policies evidence that bankers recognize and acknowledge that they are not justified in relying on borrower valuations and, in fact, do