For years, Barbara Small fought to hold onto her father’s house in Flatbush, Brooklyn, a narrow three-story brick home on Linden Boulevard the two had bought together in 2005. When the foreclosure auction finally came, she rode the train to Brooklyn Supreme Court in tears to watch strangers bid on it. The building sold for roughly $1.3 million against a judgment of about $852,000. By ordinary math, she should have walked away with a substantial surplus. Instead, after a court-appointed referee signed off on the bank’s interest calculation, she was left with around $100,000, some $24,000 less than the number should have produced.
The referee who approved the figure was not an anonymous court functionary. Jeffrey Dinowitz sits in the New York State Assembly representing the Bronx and also works the court referee system on the side, one of many politically connected lawyers New York judges routinely appoint to oversee foreclosure sales. His most recent financial disclosure shows he earned between $5,000 and $20,000 from court appointments in a single year, on top of his legislative salary. Referees are typically paid a flat $750 per case. Dinowitz told reporters he reviews the math on what lenders’ attorneys send him, but said he wasn’t aware they might be using the wrong figure, and that court administrators never trained him on how to catch it.
The mechanism behind Small’s loss, and behind more than 400 cases like it identified in a joint investigation by Gothamist and New York Focus, is not complicated once it’s exposed. New York law bars lenders from charging interest on interest for one- and two-family owner-occupied homes, and a panel of state appellate judges upheld that rule in 2015. After a foreclosure sale, a lender’s law firm can legally tack on additional interest to cover the gap between when the judgment was calculated and when the sale actually closes, a process that can stretch months or years. The court system’s own referee forms instruct that this additional interest be calculated off the homeowner’s original unpaid principal balance. Fourteen law firms representing banks and servicers used the judgment amount instead, a figure that already includes prior interest, fees, and costs, effectively charging interest on interest the law says they can’t charge.
An independent review of state court records by Gothamist and New York Focus found those fourteen firms used the disputed method in roughly 95 percent of more than 7,400 foreclosure cases going back to 2013. RAS Boriskin alone drafted more than 2,000 reports using the inflated figure since 2015. Frenkel Lambert drafted over 1,600 since 2014, almost never using the correct number, until last year.
What changed was a lawsuit. Kew Gardens attorney Mark Anderson began digging into the calculations after finding a Brooklyn teacher, Yamilet Salty, shorted more than $1,500 in the sale of her two-family home in Cypress Hills. He kept pulling files and found the same pattern recurring across boroughs and firms. In April 2025, his practice filed five proposed federal class actions in the Eastern District of New York, naming Schiller Knapp, Shapiro, DiCaro and Barak (now doing business as LOGS Legal), Frenkel Lambert, RAS Boriskin, and Eckert Seamans. The complaints allege violations of the state’s compound-interest ban, deceptive practices under a state criminal statute carrying treble damages, and RICO, on the theory that the diverted funds amounted to wire fraud.
The industry’s response was instructive. In the months after the filings, several of the named firms began switching to the correct calculation method. Frenkel Lambert, which had used the judgment amount in nearly every report it filed since 2014, started using the principal balance more than 60 percent of the time within about four months of being sued. Three firms that were never named as defendants at all — Roach & Lin, David A. Gallo and Associates, and Greenspoon Marder — made the same quiet correction on their own. None of the firms responded to press questions about why they changed course.
Attorneys for BNY Mellon, the trustee for the investors who owned Small’s mortgage, and for Shellpoint Mortgage Servicing, the servicer on her loan, declined to discuss how the companies calculate interest in foreclosure cases at all.
BNY Mellon’s defense since has centered on the calendar rather than the arithmetic. In an October motion, the bank’s attorney, Ryan DiClemente, argued that Small offered no explanation for why she or her lawyer never challenged the interest calculation during the foreclosure itself, or why she accepted the leftover funds she was given without objection. Anderson’s answer is that the inflated figure never appears until the post-sale referee’s report, a document filed after the auction is over and the home is already gone, leaving an unrepresented homeowner with no realistic way to catch or contest it before the money is disbursed.
State senator Zellnor Myrie introduced legislation the same day the investigation published, which would require every referee in the state to itemize interest calculations on a single standardized form and would push toward the principal-balance method as the default. As of this writing, seven months later, the bill has not advanced out of committee. A companion bill from Assemblymember Walker, introduced in May, would revisit the legal immunity referees currently enjoy for their conduct in these cases. Neither bill has moved.
What the state court system’s own Office for Justice Initiatives did produce was a March 2026 guidance document for referees explicitly citing the law against compound interest on residential loans, a law that has been settled since 2015 and that fourteen firms managed to disregard for over a decade regardless.
New York is now running two fraud-accountability efforts at once, and neither one talks to the other. Mayor Mamdani’s Office of Deed Theft Prevention, stood up in April after Councilmember Chi Ossé was arrested trying to stop a Bed-Stuy eviction, exists to catch forged ownership filings before a home is stolen outright. State Senator Zellnor Myrie’s bill, introduced the same day Gothamist and New York Focus exposed the referee interest scandal, exists to stop fourteen foreclosure mills from padding judgments after a home is already gone. One office answers to City Hall. One bill has sat in Albany committee for seven months. Both are chasing the same theft under different names, and both are targeting the same neighborhoods — Central Brooklyn, Southeast Queens — where Black and Latino families have spent decades building the one asset this industry keeps finding new ways to take. Mamdani will tell you deed theft preys on the New Yorkers who can least afford it. He is right, and he could just as easily be describing the referee down the hall who never got trained to catch a bank’s bad math either.
The pattern here will be familiar to anyone who has watched this industry for any length of time. A practice that overcharges homeowners runs for years, unpoliced by the referees and court officials whose job is to catch it. It surfaces only when an outside attorney does the arithmetic those officials were supposed to do themselves. The firms correct their behavior the moment a lawsuit lands, not the moment the law required it. And the fix that lawmakers put forward once the pattern became public still sits in committee, while the litigation itself grinds through a fight over deadlines instead of a fight over whether homeowners were cheated.
