Prosecutors investigating New York Attorney General Letitia James for possible mortgage fraud have found evidence that appears to disprove some of the charges against James that were secured earlier this month, including the degree to which James personally profited from his real estate purchases, according to a memo summarizing the state of the case in September, sources told ABC News.
Prosecutors, who led a months-long investigation into James’ conduct, concluded that any financial gain from her allegedly fraudulent mortgage in the year she bought the home would have totaled about $800, the sources said.
Government lawyers also expressed concern that the case is unlikely to be proven beyond a reasonable doubt because federal mortgage guidelines for second homes do not clearly define occupancy, which the sources said is a key element of the case.
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Prosecutors detailed the findings to former U.S. Attorney Eric Siebert early last month in an internal Justice Department memo summarizing the state of the case, according to sources familiar with its contents. Siebert was ousted by President Donald Trump last month after refusing to indict James in what critics called a vendetta campaign by Trump against his perceived political enemies.
“I want him out,” Trump said a day before Siebert was ousted, telling reporters that it was because two Democratic senators from Virginia supported his nomination. Of James, Trump said, “I feel like she’s very guilty of something, but I really don’t know.”
Acting U.S. Attorney Lindsey Halligan, appointed by Trump with express authority to indict James and others, secured James’ indictment earlier this month on charges of bank fraud and making false statements to a financial institution.
Last week, Halligan abruptly fired the memo’s author, career prosecutor Elizabeth Yusi, in part because of her opposition to bringing the case against James, the sources said.
Michael M. Santiago/Getty Images – PHOTO: Attorney General Letitia James speaks during a news conference in her New York office in 2025. October 16 in New York.
Yusi did not immediately respond to ABC News’ request for comment. A DOJ spokesman and attorneys for James declined to comment.
James, who has denied all wrongdoing, will appear in federal court in Norfolk on Friday to be charged.
According to the indictment, James falsely described the property as a second home, but used it as an “investment property” rented out to a family of three. The grand jury said James collected thousands of dollars in rent and would have saved $17,837 over the life of the mortgage compared to a larger loan.
“The allegations in this case are willful, criminal acts and a gross breach of public trust,” Halligan said in a statement earlier this month.
But in a memo to Halligan’s predecessor last month, prosecutors offered a more lenient assessment, sources familiar with the memo said.
James in 2020 purchased a home in Norfolk, Virginia for his great-grandmother for $137,000 in 2020. and immediately allowed her and her children to start living in the house rent-free. Prosecutors met with James’ niece, who said she never signed a lease, did not pay rent on the home, and that James often sent her money to cover some expenses, according to the report, according to sources familiar with its contents.
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While the indictment alleges that James made “thousands” in rental income, sources tell ABC News that prosecutors have found no record of James collecting more than the $1,350 in rent from his niece that James reported on her 2020 home. tax return that covered utilities, according to sources familiar with the investigation.
By last month, investigators had met with a dozen witnesses who gave conflicting accounts of whether James’ actions constituted fraud or how much she profited from her actions, the sources said.
According to sources familiar with the matter, James put down a 20% down payment on the home, the same amount she would have to put down on an investment property, rather than the 10% normally required for a second mortgage.
A loan officer who worked with James told investigators that the interest rate on the second home would have been 0.25% to 0.50% lower than the investment property at the time James bought it, and the difference would have been $15 to $30 less in monthly mortgage payments, or as much as $10,800 less over the life of the loan, the investor source said. In the indictment, Halligan said James avoided a 0.815% higher interest rate, saving James $17,837 over the life of the loan.
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But prosecutors have expressed concern that the vagueness of federal mortgage guidelines will make it difficult to prove James’ actions were intentional fraud by falsely claiming she intended to foreclose on the home, sources told ABC News. That’s because Fannie Mae’s guidelines don’t clearly define the term “occupied,” leaving it unclear whether a person needs to spend the night at the home or just visit a few times a year.
Witnesses told prosecutors that James repeatedly told realtors and loan officers that the house would be for her niece, but that she would stay there occasionally when she visited her family in Virginia, the sources said. James’ niece told investigators that James visited their home several times a year but did not stay overnight.
Prosecutors argued that James actually stayed in hotels while visiting family, rather than living in the home, so she could not be considered a “resident” to justify the home being a second property.