Tuesday, March 28, 2017

Boston Feds Bust Real Estate Operators For Alleged Conspiracy To Operate Short Sale Fraud; Prosecutors: Deals Failed To Meet "Arms-Length" Requirements, Involving Related Parties On Both Sides Of Transactions; Underwater Sellers Often Remained In Home After Closing Deal With Significantly Reduced Mortgage Debt

From the Office of the U.S.Attorney (Boston, Massachusetts):
  • A Methuen attorney and a Methuen loan officer pleaded guilty yesterday [March 23] in connection with a sweeping conspiracy to defraud banks and mortgage companies by engaging in sham “short” sales of residential properties in Merrimack Valley. Separately, a Methuen real estate broker was arrested on Wednesday, March 22, 2017, on related charges, and a Dunstable attorney was sentenced after pleading guilty to participating in the same conspiracy.

    Jasmin Polanco, 37, a real estate closing attorney, and Vanessa Ricci, 40, a mortgage loan officer, each pleaded guilty yesterday to one count of conspiracy to commit bank fraud. U.S. District Court Senior Judge Douglas P. Woodlock scheduled Ricci’s sentencing for June 22, 2017. Polanco’s sentencing hearing has not yet been scheduled.

    Separately, a real estate broker from Methuen, Greisy Jimenez, 49, was indicted this week on two counts of bank fraud and one count of conspiracy to commit bank fraud in connection with the same alleged scheme. In addition, on March 22, 2017, U.S. District Court Judge Rya W. Zobel sentenced Hyacinth Bellerose, 51, a real estate closing attorney from Dunstable, to time served and one year of supervised release to be served in home detention.

    The charges arise out of an alleged scheme to defraud various banks via bogus short sales of homes in Haverhill, Lawrence and Methuen in which the purported sellers remained in their homes, with their debt substantially reduced. A short sale is a sale of real estate for less than the value of any mortgage debt on the property. Short sales are an alternative to foreclosure that typically occur only with the consent of the mortgage lender. Generally, the lender absorbs a loss on the loan and releases the borrower from the unpaid balance. By their very nature, short sales are intended to be arms-length transactions in which the buyers and sellers are unrelated, and in which the sellers cede their control of the subject properties in exchange for the short-selling bank’s agreement to release them from their unpaid debt.

    The alleged conspiracy began in approximately August 2007 and continued through June 2010, a period that included the height of the financial crisis and its aftermath. Home values in Massachusetts and across the nation declined precipitously, and many homeowners found themselves suddenly “underwater” with homes worth less than the mortgage debt they owed. As part of the alleged scheme, Jimenez, Polanco, Ricci, Bellerose and others submitted materially false and misleading documents to numerous banks in an effort to induce them to permit the short-sales, thereby releasing the purported sellers from their unpaid mortgage debts, while simultaneously inducing the purported buyers’ banks to provide financing for the deals. In fact, the purported sellers simply stayed in their homes, with their debt substantially reduced.

    The charging documents allege that as part of the conspiracy:

    The conspirators falsely led banks to believe that the sales were arms-length transactions between unrelated parties, when in fact, the transactions were not arms-length; the buyers and sellers were frequently related, and the sellers retained control of (and frequently continued to live in) the properties after the sale;

    The conspirators submitted phony earnings statements in support of loan applications that they submitted to banks in order to obtain financing for the purported sales; and

    The conspirators submitted phony “HUD-1 Settlement Statements” to banks that did not accurately reflect the disbursement of funds in the transactions. (HUD-1 Settlement Statements are standard forms that are used to document the flow of funds in real estate transactions. They are required for all transactions involving federally related mortgage loans, including all mortgages insured by the Federal Housing Administration.)

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