Prosecutors investigating New York Attorney General Letitia James for potential mortgage fraud have found evidence that may weaken some allegations against her. A memo summarizing the case, reviewed by sources, indicates that any financial gain James received from her property purchase was minimal, amounting to about $800 in the year she bought the home.

The investigation, which lasted several months, raised concerns among government lawyers about the ability to prove the case beyond a reasonable doubt. A key issue is the ambiguity in federal mortgage guidelines regarding occupancy, which is central to the allegations. The findings were detailed in an internal Department of Justice memo presented to former U.S. Attorney Erik Siebert, who was dismissed last month after refusing to pursue charges against James.

President Donald Trump had expressed dissatisfaction with Siebert, stating, "I want him out," and suggesting that Siebert's removal was due to political motivations. Trump has publicly claimed that James appears guilty of wrongdoing, although he admitted he does not have specific knowledge of the case.

Interim U.S. Attorney Lindsey Halligan, appointed by Trump, secured an indictment against James earlier this month on charges of bank fraud and making false statements to a financial institution. Halligan stated that the charges represent "intentional, criminal acts and tremendous breaches of the public's trust."

James, who has denied any wrongdoing, is scheduled to appear in federal court in Norfolk on Friday for her arraignment. The indictment alleges that she misrepresented the property as a second home while using it as an investment property rented to a family. It claims she collected thousands in rent and saved $17,837 over the life of the mortgage compared to a higher-rate loan.

However, the memo from prosecutors to Halligan's predecessor offered a more nuanced view. James purchased the Norfolk, Virginia, home for $137,000 in 2020 for her great-niece, allowing her and her children to live there rent-free. The niece reported that she never signed a lease or paid rent, and James often sent her money for expenses.

While the indictment claims James profited significantly from rental income, sources indicate that prosecutors found no evidence of rent collection beyond $1,350 reported on her 2020 tax return, which was said to cover utilities. Investigators have interviewed ten witnesses, who provided conflicting accounts regarding whether James' actions constituted fraud and the extent of her financial benefit.

James made a 20% down payment on the home, consistent with investment property requirements, rather than the 10% typically needed for a second home. A loan officer involved in the transaction noted that the interest rate for a second home would have been lower than for an investment property, potentially saving James between $15 and $30 monthly, or up to $10,800 over the loan's 30-year term.

The indictment alleges that James avoided a higher interest rate, saving her $17,837. However, prosecutors are concerned that the lack of clarity in federal mortgage guidelines regarding occupancy could complicate proving that James intentionally misrepresented her intentions. Witnesses reported that James informed realtors and loan officers that the home was for her niece, but she would occasionally stay there during family visits. The niece confirmed that while James visited several times a year, she did not stay overnight, as James typically chose to stay in hotels during her visits. This raises questions about whether James can be considered an occupant of the property, which is crucial to the case's claims.