Three words in Letitia James' mortgage contract doom the fraud case against her

[bigtree]

In a five-page indictment, James is charged with two counts of financial fraud in connection with her 2020 purchase of a three-bedroom house in Norfolk, Virginia. Lindsey Halligan, Trump’s handpicked top federal prosecutor in the Eastern District of Virginia, alleges James signed a “Second Home Rider” contract that prohibits renting the property. James then rented out the home anyway, in violation of those loan terms and federal bank and mortgage fraud laws, according to the indictment.

POLITICO obtained James’ mortgage documents, including her signed “Second Home Rider” from the Norfolk Circuit Court Clerk’s Office. The rider, a standard addendum to mortgage contracts developed by Fannie Mae and Freddie Mac, requires James to “maintain exclusive control over the occupancy of the Property, including short-term rentals.” The idea is to restrict buyers’ ability to use a “second home” as an “investment property” — by hiring a management company and using it primarily to generate income — after obtaining the lower loan rates associated with houses purchased as vacation or “second” homes.

That final, three-word phrase in the rider — “including short-term rentals” — could be decisive. In plain English, the provision means that James is explicitly permitted to rent the place out periodically, so long as she remains in charge of matters such as the number of tenants and how they use the property, legal experts say. The contract’s restrictions bar James from giving “a management firm or any other person or entity any control over the occupancy or use of the Property.”

Halligan has alleged that James used the house “as a rental investment property, renting the property to a family of (3),” but not that she ever hired a property-management company or some other third party to oversee the Norfolk home.

https://www.politico.com/news/2025/10/29/letitia-james-mortgage-contract-indictment-00625010?nid=0000014f-1646-d88f-a1cf-5f46b7bd0000&nname=playbook&nrid=0000016a-c134-d13a-abea-c577ae4e0000

[FBaggins]

1. The author is incorrect

The agreement forbids a number of things. Finding an example of something she dint violate (and isn’t accused of violating) doesn’t change the other requirements

She agreed that the property would be for her exclusive use for the majority of the year. I can’t think of a way for someone else to live in the home year round (whether paying rent or not)

[Happy Hoosier]

2. I'm no lawyer, but other lawyers disagree with you.

According to them, exclusive use does not necessarily mean occupancy. And the rider language does matter. Any ambiguity can torpedo any notion of intent to defraud.

[FBaggins]

3. Exclusive use DOES NOT mean that occupancy

But it does mean that someone else can’t be occupying it.

Of course the language in the rider matters. It’s just that you can’t say “I complied with all but one of the conditions

[dpibel]

4. Where did you get your information?

Your statement of the terms of the agreement does not match the language of the agreement, which is:

Borrower will keep the property available primarily as a residence for Borrower's personal use and enjoyment for at least one year after the date of this Second Home Rider, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control.

It's not clear to me where you have extracted the language you claim governs. The quoted clause has nothing about "the majority of the year."

At worst, the case is going to rise and fall on what happened during the first year after James bought the place. And that's assuming there's nothing about the other two exceptions.

[FBaggins]

5. You provided a link to the document

It's in the part you aren't quoting

"Borrower will occupy and use" ... "will maintain exclusive control"...

In the part you do quote ("Borrower will keep the property available primarily as a residence for borower's personal use " ) -
"Primarily" has always been interpreted as "at least half of the year"

[dpibel]

6. For the first year

It's right there, just after the part you just quoted.

It would, frankly, be remarkable if you were the only person who could see the truth here and the various experts quoted in the article are all overlooking the truth you have divined.

[FBaggins]

8. Yes - and the story is that she purchased the home for her grand niece's use

Nobody has claimed that she kept the home empty for the first year (which absolutely could be a valid defense).

It would, frankly, be remarkable if you were the only person who could see the truth here and the various experts quoted in the article are all overlooking the truth you have divined.


Maybe someone edited the reporting since you read it? I see no experts quoted.

[dpibel]

9. Did you read the entire article?

The bit quoted in the OP is a very small part of a rather long article, which includes:

“The core of the allegations is that James knowingly lied that she was not going to rent,” Adam Levitin, a Georgetown Law professor who specializes in banking and finance law, said after reviewing James’ Second Home Rider. “The problem is there is absolutely no statement ever made by James that she would not rent out the property — the contract language does not prohibit rentals, it prohibits rentals via a third party.”

Eric Forster, a real estate consultant who has served as an expert witness in mortgage fraud cases for nearly 30 years, agreed that the contract does not prohibit renting altogether. Forster offered expert testimony in a similar mortgage fraud case against former Baltimore state’s attorney Marilyn Mosby, a Democrat. “There’s nothing in the Second Home Rider that says that when you’re not using [the home] for vacation that it must be vacant the rest of the time,” he said.
...
“The indictment fails to acknowledge that the Second Home Rider permits rentals with certain conditions nor that this view of the Second Home Rider is fully consistent with Fannie Mae’s own interpretive guidelines on it,” said Benjamin Klubes, a former acting general counsel at the Department of Housing and Urban Development during the Biden administration.

Those appear to me to be people with some fairly high degree of specialized expertise. They appear to disagree with you.

[FBaggins]

17. I did - none of them are commenting on the topic in the title/OP

And do not appear to have read the indictment.

See my #15 below.

“The indictment fails to acknowledge that the Second Home Rider permits rentals with certain conditions” ignores the fact that none of what is permitted is actually something that fits either the indictment or what allies have claimed.

“There’s nothing in the Second Home Rider that says that when you’re not using [the home] for vacation that it must be vacant the rest of the time,” - which is true… but also irrelevant since that isn’t what was claimed by either side.

“core of the allegations is that James knowingly lied that she was not going to rent” - Nope… the core of the indictment is that she knowingly lied when she claimed that the home would be a second residence when she never lived there.

Renting it out would be one way of proving that it wasn’t a second home… in which case all these comments would be relevant if she had very limited rental use. But they aren’t relying on actual rent to prove anything and it wasn’t limited in any way similar to those exceptions

To the topic of the OP - none of the claimed expert opinions deal with the subject of the OP that three words meant that she was only restricted from hiring a third party to rent out her home

[dpibel]

18. Pretzels are tasty!

How is it that you square your belief that the property had to be maintained primarily as a residence in perpetuity with the fact that the clear language imposes that condition for a year.

Yes, the first sentence of the rider says that without qualification. But the later sentence adds the one-year term

If there's an ambiguity, it's going to be construed against the drafter.

[FBaggins]

20. I assume that's not an intentional strawman

I can't see anywhere that I've implied that it had to be "in perpetuity". I haven't seen anyone claim that the home was unoccupied for the first year and then she changed her mind. The accusations are that the home was immediately occupied (but not by her). The Schedule E claiming rental income and deducting expenses was for the tax year in which she purchased the home.

I would agree that if the home were empty for a year (apart from actual vacation usage by James) she would have a much clearer defense... but nothing hints that this is the case.

If there's an ambiguity, it's going to be construed against the drafter.

This isn't some fresh contract unique to a specific lender. It's Form 3890 that is a standard instrument for Fannie/Freddie underwritten second home mortgages. It's standard language that has been used on tens of thousands of mortgages every year. If there was any ambiguity, it would have been edited out by now.

[dpibel]

22. Not sure why you're so invested in this

Suffice to say, your position is the minority one, and not shared by many others, including federal prosecutors prior to Lindsay Halligan.

Not quite sure what your expertise is that allows you to be so certain of your conclusions.

In any case, enjoy!

[marble falls]

26. I'm not so sure, either.

[NJCher]

16. it really sucks when you have to

read the entire article to argue a point here, doesn't it?

[bigtree]

7. this is specious

...'the other requirements' weren't violated at all.

Moreover, the indictment that we can all read right now says that she reported 'thousands' of dollars in rents received” for tax purposes.

James’ 2020 tax return reflected $1,350 in rental income, which was paid to cover the cost of utilities, according to ABC News.

“James filed Schedule E tax form(s), under penalties of perjury, treating the … Property as rental real estate, reporting fair rental days, zero personal use days, thousand(s) of dollars in rents received, and claiming deductions for expenses relating to the property, further contradicting the second home classification,” Halligan wrote in the indictment.

Even if Thompson did pay rent as the indictment suggests, that fact alone does not establish criminal fraud, three experts in contracts, finance and housing law told POLITICO

“The core of the allegations is that James knowingly lied that she was not going to rent,” Adam Levitin, a Georgetown Law professor who specializes in banking and finance law, said after reviewing James’ Second Home Rider. “The problem is there is absolutely no statement ever made by James that she would not rent out the property — the contract language does not prohibit rentals, it prohibits rentals via a third party.”

https://www.politico.com/news/2025/10/29/letitia-james-mortgage-contract-indictment-00625010

[FBaggins]

15. Rent isn't actually part of the charges

it’s briefly mentioned (“renting the property to a family of 3”) in the general allegations section of the indictment. But the actual charges don’t rely on that

1- represented as a secondary residence with no intended or actual use by her
2- would be used as a secondary residence when she knew it was intended and used as an investment property

The other allegation mentioning rent doesn’t really rely on the amount of rent or whether she could rent occasionally. The key to that allegation is that her Scedule E claimed deductions for expenses. The problem there is that doing so requires fewer than 15 days of personal use (or fewer than 10% of actual days rented)… and she declared zero days of personal use.

[bigtree]

19. smoke. No real prosecutor thought she should be charged.

...nothing claimed has been proven, and I notice that you provided somke here but no actual fire.


James purchased the home in Norfolk, Virginia, for her great-niece in 2020 for $137,000 in 2020 and immediately allowed her and her children to begin living in the house rent-free. Prosecutors met with James' niece, who stated that she had never signed a lease, had never paid rent for the home, and that James had often sent her money to cover some of the expenses, the memo concluded, according to sources familiar with its contents.

https://www.msn.com/en-us/news/other/evidence-appears-to-undercut-claims-against-james-prosecutors-found-sources/ar-AA1P3SM1

[FBaggins]

21. That part is true. It's clearly a politically-motivated prosecution

When I've seen it prosecuted in the past, someone lost money or it was part of a much larger scheme involving more than one property.

An even better mode of defense appears to be the possibility that she can get the prosecutor removed from the case.

But I haven't seen anything yet that implies that she didn't do what she is accused of or that it wasn't illegal.

"James purchased the home in Norfolk, Virginia, for her great-niece in 2020 for $137,000 in 2020 and immediately allowed her and her children to begin living in the house rent-free."

All true. And the way she chose to do that appears to be illegal. She should have told the bank that she would not be occupying the home herself (either as a principal or secondary residence) - which would have increased the mortgage payment and the required down-payment. I've seen that happen when the fraud was on the part of the mortgage broker trying to get someone qualified who otherwise would be rejected (losing the broker the commission)... but this is a state AG. She's no sucker.

[bigtree]

25. they're not going to spend much time parsing whether she visited the home or stayed there

...and Fannie Mae doesn't actually make it clear what 'occupancy means.

Not to overlook that we're talking about a difference that would have amounted to $15 to $30 less in a monthly mortgage payment, extrapolated in the indictment over the entire life of the loan to make it look like James has profited by more than the paltry sum.

It's just as valid to say that the AG did in fact 'know better' than to scheme for $15 to $30 less in monthly mortage payments. Nothing in evidence shows that she intended to defraud the bank when she made the loan. At best she violated the terms, but it's really something to accuse someone of felony fraud for allowing a family member to stay in the home after she bought it.

Where's the proof that she knew what was going to happen after she made the loan and took possession of the home. The prosecutors are alleging some deep criminality in what's essentially giving them a place to live, and portraying that as a scheme to defraud the bank.

It's ridiculously absurd, the fraud appearing to be coming from the prosecutor because of the thinness of the evidence, the pettiness of the claims, and the nature of the appointment pointing to a forced prosecution motivated by politics.

You're barking up the wrong tree if you think I'm going to come anywhere near to saying that constitutes proof of a crime committed, much less something that a jury is going to believe is a valid felony charge.

And the political nature of this prosecution is intimately tied to it's prosecutability, because of the firing of prosecutors who refused to move to charge James based on everything this lady who has never prosecuted anything has available to her.

Observers who go down the route to carefully explain the law fail to show other cases where this set of facts has been charged or pressed to conviction in the past.

“In my experience, federal prosecutors would not have seriously pursued something this minor,” James Kainen, a professor with expertise in real estate and white collar crime at Fordham University School of Law, said in an email. “The indictment is disproportionate and inconsistent with established prosecutorial norms.”

Paul Schiff Berman, a law professor at the George Washington University School of Law, told the Associated Press, “It is very uncommon for prosecutors to bring these sorts of claims absent a pattern of malicious activity or evidence that the individual has actually harmed the bank by not paying their mortgage or if it’s part of a much larger fraudulent scheme.”

Kainen, the Fordham law professor, told us, “The claimed mortgage fraud alleges a maximum savings to Ms. James” of about $18,933 “and no loss to the bank. … By comparison, prosecutors overlooked potential mortgage fraud cases involving applicants who lied about thousands of dollars in income and then defaulted on hundreds of thousands of dollars of debt during the Great Recession.”

The James case “is hardly an investigation that would have resulted in an indictment for two federal felonies,” Kainen said. “Winning this case at trial requires proof beyond a reasonable doubt that Ms. James had, in the words of the indictment, ‘no intention to make personal use of the property’ when she applied for the loan. If she changed her mind, thought she might use it, or even had any reason to spend time in Virginia, it would be difficult to convict her. Responsible prosecutors do not spend their time on minor cases that are hard to win.”

https://www.factcheck.org/2025/10/appraising-the-federal-indictment-of-letitia-james/

[Hassin Bin Sober]

23. When you sign a document attesting to exclusive use you don't list everyone who will be occupying the property

Having a non (of any consequence) rent paying family member in the property doesn’t exclude Leticia James from using the property.

James has already said she did spend some time in the property. And before you say it - the relationship was obviously close enough to allow mostly rent-free living for this grand niece.

That’s just one of many reasons this case is garbage and they had to run it through several times.

[marble falls]

27. Very nicely put.

[FBaggins]

28. That's true - and would be a great defense if it were relevant

Unfortunately, it isn't.

She can have anyone she likes live with her in the house. She can even charge them rent.

James has already said she did spend some time in the property

She also said under oath that she spent zero days there on the first year's taxes.

And "some time" isn't good enough. Let me break it down. There are three categories of occupancy when Freddie/Fannie underwrite a loan (ok... it's four... but this isn't a group home):

1 - Owner-occupied as a primary residence. These are the lowest-risk and receive the best pricing, lowest down payments, and the easiest approvals. It doesn't matter whether other people live there or not - but the owner must maintain it as their principal residence.

2 - Second homes. The home is primarily for the owner's use and they must reside there at least part of the year. Other people can be there with the owner, but they can't live their year-round while the owner visits occasionally. These receive a higher rate and down payment requirements... but still much lower than:

3 - Investment properties - everything else. Must receive a Loan Level Price Adjustment to account for the greater risk. That adjustment varies depending on down payment and credit score.

The allegation is that she said she fit into category 2 when she belonged in category 3.

https://selling-guide.fanniemae.com/sel/b2-1.1-01/occupancy-types

[Hassin Bin Sober]

30. Dude. I'm part owner of a mortgage company.

(I’ve been posting about mortgage stuff for years. It’s in my history. I’m not making it up)

Just literally had this scenario a couple months ago.

Our client, who planned on having her daughter live in the property part time, had more issues with the condo association board (they were squawking about the unit being investor occupied - It only came up because of a seller with a case of diarrhea of the mouth). My advice to her was show up on moving day with a pillow under her arm and loudly proclaim she’s off on her world tour.

The guidelines on second homes are so loose they are laughable. The underwriters used to only care the property was far enough (drive) away that it made sense but now they don’t even care about that (lm talking about in-town city units versus suburbs)

[IbogaProject]

24. Not possible with a 2nd Home

This mortgage wasn't for a primary residence and there was no way she could have lived their over half of the year.

[viva la]

29. Dudnt her niece live there?

That seems to be allowed, still family.

Anyway, it's selective prosecution. Trump has made it very clear he's going to order the prosecution of anyone he's mad at.

[twodogsbarking]

10. When I was young a female CPA told me the expression "picking the fly shit out of pepper".

Here it is.

[KS Toronado]

11. Quite the discussion above, unless I missed it.....

I thought she allowed some relatives to live there rent free, or am I thinking of a different case
dumpie started?

[SpankMe]

12. Question: Who is being defrauded here?

Assuming she did everything the government said she did, who is being defrauded by her declaration of the Virginia home as a second residence? Is that the mortgagee?

Did Trump not undervalue and overvalue some of his properties in order to gain advantages in taxes, loans and stuff? Isn't that "making false statements to a financial institution"? Why can't we bring that up?

[UTUSN]

13. K&R

Last edited Thu Oct 30, 2025, 12:05 AM - Edit history (1)

[popsdenver]

14. She would be better off

researching and making a list of all the Republican Politicians that are doing the exact same things, using the same techniques........
And questioning why they were not being targeted and charged.......

Or to point out how the Grand Master of Grifting, did the equivalent by repeatedly and totally, falsifying his net worth/equity to obtain loans from banks.......