“99% of lawyers give the rest a bad name.” – Steven Wright
Imagine your trusty attorney is holding the money you parked with him for a real estate transaction.
It’s in escrow. He’s supposed to keep it safe.
Then, when you go to transact, you discover he’s loaned it to a 33-year-old apartment investor who can’t pay it back.
Who do you sue?
Earlier this month, some jilted investors sued Flagstar Bank for allegedly letting something this dumb to happen.
Flagstar inherited this alleged lawyerly Ponzi when it acquired assets from Signature Bank, which famously failed in 2023. But the investors allege that Flagstar had plenty of opportunities to end it.
Flagstar, based in Hicksville, N.Y., is one of the nation’s larger regional banks, with nearly $88 billion in assets and about 320 branches. It has not yet responded to the allegations in court.
The lawsuit, filed on Oct. 6 by Lakewood, N.J.-based lender Blueberry Funding, “seeks to hold Flagstar liable for what Flagstar itself knew, and did, after it took over the Trust Account.”
Which brings us to the owner of that account, disbarred New York commerical real estate attorney Mark Nussbaum, who operated as Mark J. Nussbaum & Associates and later Nussbaum Lowinger LLP.
At some point, practicing law wasn’t enough.
Nussbaum branched into hard-money lending, bridge loans and something called “liquidity enhancement,” with the money flowing through his firms’ escrow accounts.
He built much of his business within the close-knit Orthodox Jewish communities in New York and New Jersey, connecting investors who had money with developers who needed it.
One of his specialties was “show money.” If a real-estate investor needed to convince a seller or lender that he had millions of dollars available, Nussbaum could temporarily provide the cash. The investor showed the money, the deal closed, the cash came back and Nussbaum collected a fee.
At least, that was how it was supposed to work.
Nussbaum reportedly loaned $336 million to a 33-year old hustler named Mendel “Mendy” Steiner.
In 2023, a Fitch Ratings report said this young real estate magnate had “close to 12 years of experience in real estate and currently owns 62 multifamily properties consisting of more than 4,482 units.” His empire sprawled across New York, New Jersey, Ohio, Georgia, Indiana, Illinois and Virginia.
But Steiner can’t repay his loans.
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He took his own life on Jan. 9, 2025 as his as his heavily leveraged apartment empire unraveled.
So what was Nussbaum to do with such a big hole in his client trust accounts?
According to a New York judge, he ran a Ponzi scheme, bringing in new money to cover old obligations, and eventually filed bankruptcy.
Hundreds of millions of dollars had been moving in and out of trust accounts at a furious pace. Somebody was processing those transactions and somebody should have heeded the red flags.
That somebody was Flagstar Bank.
So much for the name.
