New York Supreme Court Justice Arthur Engoron’s ruling in the long-running civil fraud trial of former President Donald Trump will also increase pressure on, and scrutiny of, lenders and appraisers in the commercial real estate market, a realtor tells The Epoch Times.
The ruling not only imposes a $355 million penalty on President Trump but also bars him from operating businesses in New York for three years, suspends his sons Eric and Donald Jr. from doing so for two years, and slaps each of them with a $4 million fine.
In his 92-page legal opinion, Justice Engoron contradicted the testimony of expert witnesses called by the defense to uphold the validity of representations on the Trump Organization’s statements of financial condition. These were the documents that representatives of the organization supplied to Deutsche Bank to establish the values of various Trump properties, such as the Mar-a-Lago resort, the Trump International Hotel and Tower, 40 Wall Street, the Trump National Doral Golf Club, the Old Post Office, and Trump International Golf Links Aberdeen, as part of the commercial loan application process.
“In order to borrow more and at lower rates, defendants submitted blatantly false financial data to the accountants, resulting in fraudulent financial statements,” Justice Engoron wrote. “When confronted at trial with the statements, defendants’ fact and expert witnesses simply denied reality, and defendants failed to accept responsibility or to impose internal controls to prevent future recurrences.”
At points in his lengthy ruling, the judge explicitly repudiated the argument of defense expert witnesses that statements of financial condition are meant to provide estimates and that the subjectivity of such statements is widely acknowledged and accepted in commercial real estate.
Significantly, the first witness cited in the “Non-Party Witnesses” segment of Justice Engoron’s opinion is Donald Bender, who worked at accounting firm Mazars USA for 41 years and dealt extensively with members of the Trump Organization.
Justice Engoron wrote that Mr. Bender’s testimony left no doubt whatsoever that Trump Organization officials, namely Trump Organization Chief Financial Officer Allen Weisselberg, understood the responsibilities they took on when providing information to Mazars and that any discrepancies on the statements of financial condition were the result of deliberate, even methodical, deception, not misunderstanding.
“Bender made absolutely clear that under the terms of engagement for compilation services, the client was responsible for ensuring that assets were stated at their ‘estimated current values,’ and that Weisselberg was responsible for determining which GAAP [generally accepted accounting principles] departures were identified and disclosed,” the judge wrote.
Effect on Real Estate
Justice Engoron’s ruling sends a warning to real estate brokers, lenders, and appraisers, according to Cara Ameer, a broker at Coldwell Banker in Ponte Vedra Beach, Florida.She said that the 92-page opinion is the product of a judicial mind thinking according to a highly specific set of legal criteria, without regard for the realities in which real estate professionals operate from day to day and the understandings that they share.
Now, as a result of the ruling and the sheer size of the penalty, lenders will operate with a sense that they are taking on considerably more risk, when weighing valuations and assessments, than purely commercial calculations might have led them to believe, Ms. Ameer suggested.
The potential legal complications are considerably greater now that Justice Engoron, in the process of upholding his own finding against the Trump Organization, has dismissed the testimony of respected and widely published financial and accounting experts such as Eli Bartov, a professor of accounting.
“Lenders are already under a tremendous amount of scrutiny when making regular loans to regular people. Jumbo loans for luxury properties are also subject to more lending restrictions due to the additional risk the lender is taking on,” Ms. Ameer told The Epoch Times.
“Underwriting guidelines and credit have certainly tightened up after the real estate market crash of 2008, and once again after interest rates increased as a result of the pandemic real estate boom and such a rapid increase in values in such a short period of time.”
Ms. Ameer returned to a point that the defense in the civil fraud trial made over and over—that valuations are subjective and the preparers of statements of financial condition attempt to provide estimates rather than universally agreed values.
“Of course, proving fraud is not always an open and shut case, depending on the property and situation,“ she said. ”The lines can be blurred and property values can be subjective, depending on the appraisal method and looking glass applied. Appraisal is defined as an art and not a science.”
But now, appraisers and brokers are likely to feel they are operating under more constraints and that the costs of any real or perceived mistakes will be dramatic indeed, according to Ms. Ameer.
“Appraisers are putting their licenses on the line each and every time they conduct a valuation. Real estate brokers cannot knowingly inflate values or mislead anyone as to what a property is worth. Appraisers and lenders who partake in falsifying property values can absolutely be held accountable, and it could have huge implications,” she stated.
“There may be more oversight implemented as a result of this ruling, and that would not surprise me.”
