Banks are foreclosing on 11 homes owned by Westhampton Beach businessman

As a cook at Loaves and Fishes in Sagaponack, Raul Moracho said he has little trouble coming up with the more than $3,000 a month he spends on rent to keep living in his two-story, cedar-shingled home in Southampton.

He explained that he and four other members of his family contribute money each month so that they can keep renting the Shinnecock Hills Road home, which features an in-ground pool. In fact, Mr. Moracho, who has rented the home since September, said his family always pays the rent on time.

But Mr. Moracho—and the occupants of 10 other rental homes in Southampton Town that are all owned by the same part-time Westhampton Beach businessman—might soon find themselves looking for a new place to live.

Their landlord, Donald MacPherson, has defaulted on his loans and, on Wednesday morning, the Suffolk County District Attorney’s office announced that he and four other people—including former Suffolk County Legislator George O. Guldi of Westhampton Beach—were to be charged with multiple felonies for their involvement in what authorities are describing as a multimillion-dollar mortgage fraud scheme targeting properties on the East End.

Mr. MacPherson and Mr. Guldi were both scheduled to be arraigned Wednesday afternoon at the Southampton Town Justice Court. Mr. MacPherson was to be charged with two counts of first-degree grand larceny and one count of scheme to defraud, both felonies, according to Robert Clifford, a spokesman for the Suffolk County District Attorney’s office.

Mr. Clifford said that Mr. MacPherson’s wife, Carrie Coakley of Manhattan, was one of those indicted and she will also be charged with one count of first-degree scheme to defraud.

Court records show that months before Mr. MacPherson was ever charged with a crime, he began defaulting on his loans, prompting an assortment of banks to begin foreclosure proceedings on his properties.

All of those interviewed who are renting houses that are owned by Mr. MacPherson, either personally or through corporations, said they had no idea that their landlord had defaulted on his mortgages. In most cases, the lessees said that they did not even realize that Mr. MacPherson was their landlord, because, in many cases, he had property managers collecting the rent on his behalf.

“It’s a very bad thing,” said Mr. Moracho in broken English during a recent interview and appearing nervous after learning that he might be evicted from his home at some point.

Mr. Moracho’s situation is being repeated throughout the country, as tenants are being caught up in the aftermath of one of the most overheated real estate markets in history. More and more speculative property owners, many of whom borrowed far more than they should have—by artificially inflating their incomes, overestimating the market upswing, or as victims of unscrupulous lenders who rubber-stamped mortgage applications when the real estate market was booming—are now finding the market cooled, and the mortgage payments too much to bear.

Throughout the South Fork—a market historically insulated from the worst of the ups and downs of the national real estate market—there has been a steady increase in the number of foreclosure proceedings starting in 2007, said Pat Ammirati, the president of The Real Estate Report Inc., a West Islip company that reports on local real estate transactions.

According to statistics provided by Mr. Ammirati, there were 312 foreclosure proceedings started in Southampton Town in 2007, followed by 317 new ones in 2008. An additional 73 foreclosure proceedings were initiated during the first two and a half months of 2009. Mr. Ammirati said the number of properties going into foreclosure jumped starting in the fall of 2007.

“It’s worsening all over all of the time,” Mr. Ammirati said about mortgage foreclosures across Long Island and the country. “Although the South Fork in the past had very few [foreclosures], it is now happening there.”

Court documents say Mr. MacPherson has not made any mortgage payments on 11 houses in Southampton Town for the past year. These properties include homes in the hamlets of Shinnecock Hills and North Sea, and on Dune Road in Westhampton Beach Village. The court records show that Mr. MacPherson stopped making payments on the mortgages—many of them worth $1 million or more—in the summer of 2007.

The banks that loaned money to Mr. MacPherson began foreclosure proceedings last year. IndyMac Federal Bank, HSBC Bank and Washington Mutual are just three of the lenders that are taking Mr. MacPherson to court.

Mr. MacPherson, as D. Clark MacPherson, is also the owner and publisher of the Soho Journal, an arts and cultural magazine covering the Soho neighborhood in Manhattan, as well as a related website providing regular Hamptons commentary. He also owns both Magic’s Pub and Sunset Cafe in downtown Westhampton Beach, and apartments in the Chelsea neighborhood of Manhattan.

Mr. MacPherson did not respond to several calls to the Soho Journal office in Manhattan seeking comment. On one call, John Coakley, a man who picked up the phone at the Journal office, said that Mr. MacPherson was referring all inquiries to attorney Patricia Weiss of Sag Harbor. Ms. Weiss did not return several calls seeking comment.

Irwin Popkin of Shirley, the attorney representing Mr. MacPherson in the foreclosure actions, said he had no comment on his client’s court cases.

Depending on how the mortgage default proceedings against Mr. MacPherson advance—experts say foreclosures typically take between two and three years to wind their way through the courts—Mr. Moracho and his family could eventually find themselves out on the street.

“It’s not fair,” said a 21-year-old woman who is renting another home tucked off Hills Station Road in Shinnecock Hills that is also owned by Mr. MacPherson and going into foreclosure.

The woman, who declined to give her name, says she lives in the two-story home with her husband, a landscaper, their toddler son, and other family members. She said that they always pay their $3,000-a-month rent on time. In a second interview, the woman added that she heard that Mr. MacPherson’s property manager, whom she identified as Robert Mazzone of Hampton Bays, was telling other families that they had to vacate their homes. She said she did not know why they were ordered to do so.

When reached at Hampton Sales and Rental Corporation on Montauk Highway in Hampton Bays, Mr. Mazzone said he did not know anything about Mr. MacPherson’s pending foreclosures. He also would not confirm whether or not he was Mr. MacPherson’s property manager. He referred all questions to Mr. MacPherson, whose permanent address is in Manhattan.

Michael McCarthy, the legal counsel for the Long Island Housing Partnership in Hauppauge, said that some tenants have as little as 72 hours to vacate their homes once a bank officially repossesses a home owned by a landlord. Founded in 1988, the Long Island Housing Partnership is a not-for-profit organization whose mission is to provide opportunities to those unable to secure affordable housing.

Keyisha Wright, the director of Housing and Urban Development counseling at the Long Island Housing Partnership, said that eviction notices often come as a complete surprise to the tenants, even those who have been paying their rent in full and on time.

Additionally, there are not many resources available to renters who are evicted because their landlord defaulted on a mortgage, Ms. Wright said. In contrast, those who own homes that are being foreclosed upon have a wealth of options at their disposal, including the restructuring of their mortgages, before losing their homes.

“There really aren’t any programs out there for them,” Ms. Wright said of renters. “It’s very sad.”

Court documents show that Mr. MacPherson secured a $1,440,000 mortgage, with an 8.5-percent interest rate, from First Central Savings Bank in March 2007 against the Hills Station Road home that is now being rented by the 21-year-old woman and her family.

According to the foreclosure proceedings, Mr. MacPherson was required to make monthly payments totaling $11,072.35 starting on May 1, 2007. But court records show that Mr. MacPherson stopped making payments on the mortgage and now owes $1,438,249.12, plus interest, dating back to June 1, 2007.

Meanwhile, Mr. MacPherson secured a $1 million mortgage in February 2007 on the Shinnecock Hills Road home now being rented by Mr. Moracho, according to court records. He now owes $1,059,869.30 on that note, according to documents. Deed and transfer records show that Mr. MacPherson purchased the home for $998,000 in November 2005.

Real estate experts explained that there is nothing illegal about securing multiple mortgages as long as the applicant does not inflate his income and holdings on the application, and does not have an appraiser artificially inflate the value of a home that is being purchased so he can secure more money than needed to buy a home.

For example, it would be illegal for an applicant to secure a $1 million loan in order to buy a property that is only worth $500,000 but has been wrongfully appraised at $1 million. In such a scenario, the person securing the mortgage could use half the money to pay off the mortgage and either pocket the remainder or use it to invest in additional properties.

“If you buy a house for $500,000, and re-finance for $1 million, you can pay off the first mortgage,” Mr. McCarthy explained. “Then you cash out for $500,000—and you won’t care if you lost the house.”

It was unclear as of early Wednesday afternoon if the fraud and grand larceny charges filed against Mr. MacPherson stem from the way he obtained the mortgages for his properties.

The Majors Path home owned by Mr. MacPherson was appraised by Southampton Town at $689,300 in 2008, according to town records. Mr. MacPherson secured a $1 million mortgage on the home in September 2006, according to court records. He purchased the home for $667,000 in 2005, according to town records.

In early February, Mr. MacPherson reported on his blog, Hamptons Politics, that his Manhattan offices were raided by the New York City Police Department on orders from Suffolk County District Attorney Thomas Spota’s office. Mr. MacPherson did not comment at the time on the intent of the search, nor would Mr. Clifford. At the time, Mr. Clifford would only state that his office is in the midst of an mortgage fraud investigation that is targeting the East End.

In February, investigators with the Suffolk County DA’s office raided Mr. Guldi’s Westhampton Beach law offices, seizing computers and files relating to the ongoing investigation. He was scheduled to be charged Wednesday afternoon with three counts of first-degree grand larceny and one count of first-degree scheme to defraud, both felonies, according to authorities.

In late February, Mr. Guldi was sued by Wachovia Federal Savings Bank, which is alleging that he pocketed about $1.8 million as part of a mortgage scheme involving a Water Mill home owned by his late father.

Mr. Guldi’s name appears on several of the title transfers on the properties owned by Mr. MacPherson that are now being foreclosed upon. Mr. Guldi has declined to comment on his relationship with Mr. MacPherson.

Several dozen people now renting the nine other homes on the East End that are currently owned by Mr. MacPherson could find themselves evicted over the next few months. Transaction records show that Mr. MacPherson owns two additional homes on Shinnecock Hills Road, a home on Longview Road, a home on Shrubland Road, and two homes on Bathing Beach Road, all of which are in Shinnecock Hills. He also owns a home on Majors Path in North Sea and two homes and a vacant lot on Dune Road in Westhampton Beach.

According to court documents, the mortgages on those homes are all in foreclosure. Mr. MacPherson also owes Westhampton Beach Village more than $7,000 in unpaid taxes for his Dune Road homes, according to a public notice.

When recently visited by a reporter, occupants of the other homes owned by Mr. MacPherson, many of whom did not speak English, declined to be interviewed. Other homes appeared to be vacant.

None of the law firms representing the banks in their foreclosure proceedings—including Steven Baum in Amherst, New York, and Rosicki, Rosicki and Associates in Plainview—returned calls seeking comment about their respective foreclosure proceedings.

But Barbara Rasmussen, a real estate attorney with offices in Westhampton Beach, explained that foreclosure proceedings can take as long as two or three years. She explained that once a property owner stops paying a mortgage, he or she has as much as nine to 12 months before the bank will serve them with a foreclosure summons. Once the summons is served, it can take another year or two before a bank actually repossesses a home.

However, Ms. Rasmussen also explained that property owners can create stumbling blocks for banks by placing the ownership of their properties under corporation names—which Mr. MacPherson has done. Most of his properties are now listed as being owned by various corporations. For example, his home at 1768 Majors Path in North Sea is owned by 1768 Majors Path Co. Inc., and his home at 17 Shrubland Road in Shinnecock Hills is owned by 17 Shrubland Co. Inc.

“Putting a property in a corporation name makes it that much more difficult to foreclose,” Ms. Rasmussen said, explaining that the transfer of ownership from a person to a corporation violates the terms of the mortgage agreement if the bank is not notified about the transfer.

Even though close to a dozen banks are now working to repossess his homes, Mr. MacPherson can continue to collect rent from his tenants and pocket all of the money. It is not clear how much he is collecting for each home, though the renters at both rental homes on Shinnecock Hills Road and Hills Station Road who spoke with a reporter said they are paying $3,000 a month or more. Mr. McCarthy also warned that most renters, if their landlord loses a home to foreclosure, will not see a dime from their security deposits.

Both Mr. Moracho and the 21-year-old woman said they had no idea what they would do if and when the banks repossess their homes. Mr. Moracho said he loves his Shinnecock Hills home for its privacy, adding that he has invested time and money into restoring the interior of the home.

“I worked inside the house, I repainted,” Mr. Moracho said.

He added that he wanted to do work on the home’s exterior—add to its sparse landscaping and perhaps smooth out the pothole-ridden gravel driveway—but was deterred from doing so by Mr. Mazzone.

The 21-year-old woman who lives in the Hills Station Road home said she and her family would be very upset if they are kicked out of their home, noting that it took them several weeks to find their current residence. “It’s clean, and there are no problems,” she said. “It’s expensive, but it’s worth it.”