Archives For Massachusetts

Patrick Lee, 46, formerly of Canton and Easton, Massachusetts,  a dual United States-Irish citizen was sentenced yesterday on charges arising out of a multi-year mortgage fraud scheme.

Between July 2005 and May 2007, Lee engaged with others in a mortgage fraud scheme. Specifically, Lee or a relative bought five multi-family buildings in Dorchester and South Boston, Massachusetts financed those purchases with fraudulently obtained mortgage loans, and quickly converted the buildings to condominiums which facilitated the resale of individual units in the buildings to straw buyers. The straw buyers were recruited for this purpose and their purchases were financed with fraudulently obtained mortgage loans. The straw buyers were assured that they would not have to put any money down or pay the mortgages, and that they would get a fee at closing and/or a share of the profits when the properties were sold. The loans were funded with interstate wire transfers from the mortgage lenders to the closing attorneys’ conveyancing accounts, and the proceeds were then distributed to Lee and/or a family member, the recruiters, and others involved in the scheme. According to the government, mortgage lenders suffered losses of about $3.9 million. Many of the lenders are no longer in business or no longer hold the fraudulent loans at issue. http://www.mortgagefraudblog.com/?s=Patrick+Lee

Lee was sentenced to four years in prison, three years of supervised release, and ordered to pay restitution of $842,552 to victim lenders. Lee will also be subject to asset forfeiture, in an amount to be determined later.

In November 2018, Lee pleaded guilty to wire fraud and making an unlawful monetary transaction. He was extradited from Ireland in 2017 to face the charges, marking the first extradition from Ireland to the United States since 2012.

United States Attorney Andrew E. Lelling; Kristina O’Connell, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigations in Boston; Stephen A. Marks, Special Agent in Charge of the U.S. Secret Service, Boston Field Office; and John Gibbons, U.S. Marshal for the District of Massachusetts, made the announcement today. Assistant U.S. Attorneys Sandra S. Bower and Christine Wichers of Lelling’s Criminal Division prosecuted the case.

David Plunkett, 53, Lynn, Massachusetts pleaded guilty today to assisting a multi-year mortgage fraud scheme by creating fraudulent tax returns and submitting fraudulent letters to lenders.

George Kritopoulos, 46, Salem, Massachusetts, one of the alleged leaders of the mortgage fraud scheme, was indicted in September 2018, and has pleaded not guilty. Co-conspirator, Joseph Bates III, 38, of Lynnfield, Massachusetts pleaded guilty in October 2018 to one count of conspiracy, three counts of wire fraud affecting a financial institution, and two counts of bank fraud.

According to the charging documents, from 2006 through 2015, Bates and others engaged in a scheme to defraud banks and other financial institutions by causing false information to be submitted to those institutions on behalf of borrowers, people recruited to purchase properties, located primarily in Salem, Massachusetts. The properties were usually multi-family buildings with two-to-four units, which the co-conspirators then converted into condominiums. The co-conspirators recruited other borrowers to purchase the individual condominium units, which were also financed by fraudulent mortgage loans.

The false information submitted to lenders included, among other things, representations concerning the borrowers’ employment, income, assets, and intent to occupy the property. Specifically, the false employment information included representations that borrowers were employed by entities that were, in fact, shell companies used to advance the fraudulent scheme. The employment information included false representations about the income that the borrowers received from the entities, when, in fact, the borrowers received little or no income from them.  Furthermore, the income asserted on the borrowers’ loan applications substantially overstated their true income. The false information also included representations that the recruited borrowers intended to live in the properties that they were purchasing, when the borrowers, in fact, did not intend to do so.

Plunkett assisted the scheme by preparing tax returns for some of the borrowers that contained false and inflated income. Some of those tax returns were submitted to lenders in support of the fraudulent loan applications. Plunkett also signed letters falsely representing that his CPA firm had prepared corporate tax returns for one of the shell entities, when in fact no such returns had ever been prepared or filed.

Because the borrowers did not have the financial ability to repay the loans, in many instances, they defaulted on their loan payments, resulting in foreclosures and millions of dollars of losses to the financial institutions. http://www.mortgagefraudblog.com/?s=David+Plunkett

Plunkett plead guilty to one count of bank fraud and one count of aiding in the submission of false tax returns.

The charge of bank fraud provides for a sentence of no greater than 30 years in prison, five years of supervised release, and a fine of $1 million, or twice the gross gain or loss, whichever is greater. The charge of aiding in filing a false tax return provides for a sentence of no greater than three years in prison, one year of supervised release, and a fine of $250,000, or twice the gross gain or loss, whichever is greater. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.

U.S. District Court Judge Richard G. Stearns scheduled sentencing for June 25, 2019.

United States Attorney Andrew E. Lelling; Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division; Christina Scaringi, Special Agent in Charge of the U.S. Department of Housing and Urban Development, Office of Inspector General, Northeastern Regional Office; and Kristina O’Connell, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation in Boston, made the announcement today. Assistant U.S. Attorneys Mark J. Balthazard and Sara Miron Bloom of Lelling’s Securities and Financial Fraud Unit are prosecuting the case.

The details contained in the charging documents are allegations. The remaining defendants are presumed to be innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

 

Allen Seymour, 50 and Tina Seymour, 46, both from Oxford, Massachusetts have been indicted today in connection with a scheme to defraud homeowners and mortgage lenders by providing fraudulent documents in legal and real estate transactions in Cambridge and Brookline, Massachusetts.

The Attorney General’s Office alleges that throughout 2017 and 2018, Allen Seymour repeatedly targeted homeowners, including elderly residents, to fraudulently gain control of residential properties and resell them at a profit to investors. The AG’s Office also alleges that Seymour forged power of attorney documents in the name of homeowners and others to gain control over the seller’s proceeds, and then laundered those funds through third party accounts.

Allen Seymour was arrested in South Carolina in May and is currently being held without bail pending probation surrender hearing scheduled for a later date. Seymour will appear in Worcester Superior Court on January 9, 2019 for a hearing regarding his probation surrender.

The AG’s Office alleges that Allen’s former wife, Tina Seymour, assisted with these forgeries and provided unauthorized access to notary stamps.

In 2010, Seymour previously pleaded guilty and was sentenced to state prison for a similar mortgage fraud scheme prosecuted by the AG’s Office.

Allen Seymour was indicted by a Statewide Grand Jury on charges of Forgery (7 counts), Uttering (5 counts), Larceny over $250 (5 counts), and Money Laundering (5 counts). Tina Seymour was indicted for Conspiracy to Commit Forgery (2 Counts). Allen Seymour will be arraigned in Norfolk Superior Court at a later date. Tina Seymour will be arraigned in Hampden Superior Court at a later date.

These new charges are allegations and the defendants are presumed innocent until proven guilty. The investigation into this matter is ongoing.

Attorney General Maura Healey made the announcement today.

This case is being prosecuted by Assistant Attorneys General Edward Beagan and Sara Shannon of AG Healey’s White Collar & Public Integrity Division, and investigated by Anthony Taylor of the AG’s Financial Investigations Division. The Massachusetts State Police, the Brookline Police, the Cambridge Police, the Federal Bureau of Investigations, and the Horry County Sheriff’s Department of South Carolina assisted with this investigation.

Patrick Lee, 45, formerly of Canton and Easton, Massachusetts, a dual U.S.-Irish citizen,  pleaded guilty yesterday to charges arising out of a multi-year mortgage fraud scheme.

Between July 2005 and May 2007, Lee engaged with others in a mortgage fraud scheme. Specifically, Lee or a relative bought five multi-family buildings in Dorchester and South Boston, Massachusetts financed those purchases with fraudulently obtained mortgage loans, and quickly converted the buildings to condominiums which facilitated the resale of individual units in the buildings to straw buyers. The straw buyers were recruited for this purpose and their purchases were financed with fraudulently obtained mortgage loans. The straw buyers were assured that they would not have to put any money down or pay the mortgages, and that they would get a fee at closing and/or a share of the profits when the properties were sold. The loans were funded with interstate wire transfers from the mortgage lenders to the closing attorneys’ conveyancing accounts, and the proceeds were then distributed to Lee and/or a family member, the recruiters, and others involved in the scheme. According to the government, mortgage lenders suffered losses of more than $1.5 million.

Lee pleaded guilty to wire fraud and making an unlawful monetary transaction. Chief U.S. District Judge Patti B. Saris scheduled sentencing for Feb. 28, 2019. Lee was extradited from Ireland to the United States last year to face the charges. It was Ireland’s first extradition to the United States since 2012.

The charge of wire fraud provides for a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of $250,000 or twice the gross gain or loss, whichever is greater. The charge of unlawful monetary transactions provides for a sentence of no greater than 10 years in prison, three years of supervised release, and a fine of $250,000 or twice the amount of criminally derived property. Sentences are imposed by a federal district court judge based on the U.S. Sentencing Guidelines and other statutory factors.

United States Attorney Andrew E. Lelling; Kristina O’Connell, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigations in Boston; and Stephen A. Marks, Special Agent in Charge of the U.S. Secret Service, Boston Field Office, made the announcement today. Assistant U.S. Attorneys Sandra S. Bower and Christine Wichers of Lelling’s Criminal Division are prosecuting the case.

 

Joseph Bates III, 38, Wakefield, Massachusetts pleaded guilty today in connection with a decade-long mortgage fraud scheme involving at least two dozen fraudulent loan transactions and $4.3 million in losses to lenders.

According to the charging documents, from 2006 through 2015, Bates and others engaged in a scheme to defraud banks and other financial institutions by causing false information to be submitted to those institutions on behalf of borrowers, people recruited to purchase properties, located primarily in Salem,Massachusetts . The properties were usually multi-family buildings with two-to-four units, which the co-conspirators then converted into condominiums. The co-conspirators recruited other borrowers to purchase the individual condominium units, which were also financed by fraudulent mortgage loans. http://www.mortgagefraudblog.com/?s=Joseph+Bates+III

Bates was charged with one count of conspiracy, three counts of wire fraud affecting a financial institution, and two counts of bank fraud. A sentencing date has not yet been scheduled. One of Bates’ alleged co-conspirators, George Kritopoulos, 46, Salem, Massachusetts was indicted on related charges in September 2018, and another participant, David Plunkett, 52, Lynn, Massachusetts was charged by Information.

The false information submitted to lenders included, among other things, representations concerning the borrowers’ employment, income, assets, and intent to occupy the property. Specifically, the false employment information included representations that borrowers were employed by entities that were, in fact, shell companies used to advance the fraudulent scheme. The employment information included false representations about the income that the borrowers received from the entities, when, in fact, the borrowers received little or no income from them.  Furthermore, the income asserted on the borrowers’ loan applications substantially overstated their true income. The false information also included representations that the recruited borrowers intended to live in the properties that they were purchasing, when the borrowers, in fact, did not intend to do so. Plunkett allegedly assisted the scheme by preparing tax returns for some of the borrowers that contained false and inflated income. Some of those tax returns were submitted to lenders in support of the fraudulent loan applications.

Because the borrowers did not have the financial ability to repay the loans, in many instances, they defaulted on their loan payments, resulting in foreclosures and losses to the financial institutions of more than $4.3 million.

The charges of bank fraud and wire fraud affecting a financial institution each provide for sentences of no greater than 30 years in prison, five years of supervised release, and a fine of $1 million. The charge of conspiracy provides for a sentence of no greater than five years in prison, three years of supervised release, and a fine of $250,000, or twice the gross gain or loss, whichever is greater. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.

United States Attorney Andrew E. Lelling; Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division; Christina Scaringi, Special Agent in Charge of the U.S. Department of Housing and Urban Development, Office of Inspector General, Northeast Regional Office; and Kristina O’Connell, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation in Boston, made the announcement today.  Assistant U.S. Attorneys Mark J. Balthazard and Sara Miron Bloom of Lelling’s Securities and Financial Fraud Unit are prosecuting the case.

The details contained in the charging documents are allegations. The remaining defendants are presumed to be innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

 

George Kritopoulos, 46, Salem, Massachusetts, a real estate developer, Joseph Bates III, 38, Lynnfield, Massachusetts and David Plunkett, 52, Lynn, Massachusetts were charged today in connection with a 10-year mortgage fraud scheme involving at least two dozen fraudulent loan transactions and $4.3 million in losses to lenders.

According to the charging documents, from 2006 through 2015, Kritopoulos, Bates, and others engaged in a scheme to defraud banks and other financial institutions by causing false information to be submitted to those institutions on behalf of borrowers, people recruited to purchase properties, located primarily in Salem, Massachusetts. The properties were usually multi-family buildings with two-to-four units, which the co-conspirators then converted into condominiums. The co-conspirators recruited other borrowers to purchase the individual condominium units, which were also financed by mortgage loans obtained by fraud.

The false information submitted to lenders included, among other things, representations concerning the borrowers’ employment, income, assets, and intent to occupy the property. Specifically, the false employment information included representations that borrowers were employed by entities that were, in fact, shell companies used to advance the fraudulent scheme. The employment information included false representations about the income that the borrowers received from the entities, when, in fact, the borrowers received little or no income from them.  Furthermore, the income asserted on the borrowers’ loan applications substantially overstated their true income. The false information also included representations that the recruited borrowers intended to live in the properties that they were purchasing, when the borrowers, in fact, did not intend to do so. Plunkett assisted the scheme by preparing tax returns for some of the borrowers that contained false and inflated income. Some of those tax returns were submitted to lenders in support of the fraudulent loan applications.

Because the borrowers did not have the financial ability to repay the loans, in many instances, they defaulted on their loan payments, resulting in foreclosures and losses to the financial institutions of more than $4.3 million.

In addition, Kritopoulos sought to obstruct the federal criminal investigation into the mortgage fraud scheme by encouraging others to make false statements and provide false documents. Kritopoulos also made false statements to federal investigators.

Kritopoulos was charged with one count of conspiracy, two counts of wire fraud, six counts of bank fraud, one count of aiding the preparation of a false income tax return, and one count of obstruction of justice. Bates was charged with one count of conspiracy, three counts of wire fraud, and two counts of bank fraud. Plunkett was also charged with one count of bank fraud and one count of aiding in the preparation of a false tax return.

The charges of bank fraud and wire fraud each provide for sentences of no greater than 30 years in prison and five years of supervised release. The charge of obstruction of justice provides for a sentence of no greater than 20 years in prison and five years of supervised release. The charge of conspiracy provides for a sentence of no greater than five years in prison and three years of supervised release. The charge of aiding the preparation of false tax returns provides for a sentence of no greater than three years in prison and one year of supervised release. Each charge also carries a fine of $250,000, or twice the gross gain or loss, whichever is greater. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.

United States Attorney Andrew E. Lelling; Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division; Christina Scaringi, Special Agent in Charge of the U.S. Department of Housing and Urban Development, Office of Inspector General, Northeast Regional Office; and Kristina O’Connell, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation in Boston, made the announcement today.  Assistant U.S. Attorneys Mark J. Balthazard and Sara Miron Bloom of Lelling’s Economic Crimes Unit are prosecuting the case.

The details contained in the charging documents are allegations. The defendants are presumed to be innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The Royal Bank of Scotland Group plc (RBS Group) has entered into a $4.9 billion settlement today resolving federal civil claims that RBS Group’s subsidiaries in the United States (RBS) misled investors in the underwriting and issuing of residential mortgage-backed securities (RMBS) between 2005 and 2008. The penalty is the largest imposed by the Justice Department for financial crisis-era misconduct at a single entity under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which allows the Justice Department to seek civil penalties for violations of criminal statutes.

The settlement includes a statement of facts that details – using contemporaneous calls and emails of RBS executives – how RBS routinely made misrepresentations to investors about significant risks it failed to disclose about its RMBS. For example:

  • RBS failed to disclose systemic problems with originators’ loan underwriting. RBS’s reviews of loans backing its RMBS (known as “due diligence”) confirmed that loan originators had failed to follow their own underwriting procedures, and that their procedures were ineffective at preventing risky loans from being made. As a result, RBS routinely found that borrowers for the loans in its RMBS did not have the ability to repay and that appraisals for the properties guaranteeing the loans had materially inflated the property values. RBS’s RMBS contained, as its Chief Credit Officer put it, “total f***ing garbage” loans with “random” and “rampant” fraud that was “all disguised to, you know look okay kind of . . . in a data file.” RBS never disclosed that these material risks both existed and increased the likelihood that loans in its RMBS would default.
  • RBS changed due diligence findings without justification. RBS’s due diligence practices did not remove fraudulent and high-risk loans from its RMBS. In fact, RBS executives internally discussed how RBS’s due diligence process was “just a bunch of bullsh**.” For example, when RBS’s due diligence vendors graded loans materially defective, RBS frequently directed the vendors to “waive” the defects without justification. One due diligence vendor, which tracked waivers by most major participants in the RMBS industry, concluded that RBS waived material defects 30% more frequently than the industry average. RBS’s waiver of material defects routinely resulted in the securitization of loans with excessive risk. When it engaged in such waivers, RBS never included enhanced “scratch-and-dent” disclosures that would have alerted investors that loans with excessive risks were included in the RMBS.
  • RBS provided investors with inaccurate loan data. RBS’s due diligence frequently found that loan data – which RBS passed on to investors, who used the data to analyze the risks associated with its RMBS – were riddled with errors. Many inaccuracies made the loans look less risky than they actually were. RBS, however, did not require originators to correct the data errors. In one deal, where RBS identified over 600 data errors associated with 563 loans (including debt-to-income ratios understated by as much as 2700%), RBS failed to disclose these errors even to the originator; instead, RBS reassured the originator that RBS had not required originators to correct data errors in the past and did not anticipate doing so for that deal.
  • RBS failed to disclose due diligence and kick-out caps. To develop and maintain business relations with originators, RBS agreed to limit the number of loans it could review (due diligence caps) and/or limit the number of materially defective loans it could remove from a RMBS (kick-out caps). RBS’s scheme reached its height in two deals issued in October 2007. In both of these RMBS, RBS identified hundreds of underlying loans that carried a particularly high risk of default and would cause losses to the RMBS investors. RBS kept these materially risky loans in the RMBS, without disclosing their inclusion to investors, because RBS had agreed to a kick-out cap limiting the number of defective loans that RBS could exclude from the securities in exchange for receiving a lower price for the loan pool. As a result, over the entirety of its scheme, RBS securitized tens of thousands of loans that it determined or suspected were fraudulent or had material problems without disclosing the nature of the loans to investors.

Through its scheme, RBS earned hundreds of millions of dollars, while simultaneously ensuring that it received repayment of billions of dollars it had lent to originators to fund the faulty loans underlying the RMBS. RBS used RMBS to push the risk of the loans, and tens of billions of dollars in subsequent losses, onto unsuspecting investors across the world, including non-profits, retirement funds, and federally-insured financial institutions. As losses mounted, and after many mortgage lenders who originated those loans had gone out of business, RBS executives showed little regard for this misconduct and made light of it.

U.S. Attorney Lelling, Acting Associate Attorney General Panuccio and FHFA-OIG Associate Inspector General Byrne made the announcement.

This resolution – the largest of its kind – holds RBS accountable for defrauding the people and institutions that form the backbone of our investing community,” said Andrew E. Lelling, U.S. Attorney for the District of Massachusetts. “Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default. Our settlement today makes clear that institutions like RBS cannot evade responsibility for the damage caused by their illicit conduct, and it serves as a reminder that the Justice Department, and this Office, will hold those who engage in fraudulent conduct accountable.”

Many Americans suffered lasting economic harm as a result of the 2008 financial crisis,” said Acting Associate Attorney General Jesse Panuccio. “This settlement holds RBS accountable for serious misconduct that contributed to that financial crisis, and it sends an important message that the Department of Justice will pursue financial institutions that illicitly harm the American economy and our consumers.”

The actions of RBS resulted in significant losses to investors, including Fannie Mae and Freddie Mac, which purchased the Residential Mortgage-Backed Securities backed by defective loans,” said Associate Inspector General Jennifer Byrne of the Federal Housing Finance Agency-Office of Inspector General’s (FHFA-OIG). “We are proud to have partnered with the U.S Attorney’s Office for the District of Massachusetts on this matter.”

These are allegations only, which RBS disputes and does not admit, and there has been no trial or adjudication or judicial finding of any issue of fact or law.

Assistant U.S. Attorneys Justin D. O’Connell, Brian M. LaMacchia, Elianna J. Nuzum, Steven T. Sharobem, and Sara M. Bloom of Lelling’s Office handled the matter.

Greisy Jimenez, 50, Methuen, Massachusetts, a real estate broker, was sentenced today in connection with a sweeping conspiracy to defraud banks and mortgage companies by engaging in sham “short” sales of residential properties in Merrimack Valley, Massachusetts.

Three co-conspirators involved in the scheme have been sentenced after pleading guilty to conspiracy to commit bank fraud. In June 2018, Jasmin Polanco, 37, Methuen, Massachusetts, a real estate closing attorney, was sentenced to 15 months in prison, three years of supervised release and ordered to pay $1,224,489 in restitution. In May 2018, Vanessa Ricci, 41, Methuen, Massachusetts, a mortgage loan officer, was sentenced to six months in prison, three years of supervised release and ordered to pay restitution of $963,730. In March 2017, Hyacinth Bellerose, 51, Dunstable, Massachusetts, a real estate closing attorney, was sentenced to time served and one year of supervised release to be served in home detention. http://www.mortgagefraudblog.com/?s=Greisy+Jimenez

The charges arose out of a scheme to defraud various banks via bogus short sales of homes in Haverhill, Lawrence and Methuen, Massachusetts 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 existing 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 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 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 conspirators falsely led banks to believe that the sales were arms-length transactions between unrelated parties; in fact, 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 also submitted phony earnings statements in support of loan applications that were submitted to banks in order to obtain new financing for the purported sales. In addition, the defendants 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.

Jimenez was sentenced by U.S. Senior District Court Judge Mark L. Wolf, to three years in prison, four years of supervised release, and ordered to pay a fine of $12,500. The court will determine issues of restitution and forfeiture on Aug. 29, 2018. In January 2018, Jimenez pleaded guilty to two counts of bank fraud and one count of conspiracy to commit bank fraud.

United States Attorney Andrew E. Lelling; Christina Scaringi, Special Agent in Charge of the Department of Housing and Urban Development, Office of Inspector General, New York Field Office; and Christy Goldsmith Romero, Special Inspector General of the Troubled Asset Relief Program, made the announcement. Assistant U.S. Attorney Stephen E. Frank, Chief of Lelling’s Economic Crimes Unit, and Assistant U.S. Attorneys Sara Miron Bloom and Victor A. Wild, also of the Economic Crimes Unit, prosecuted the cases.

It was announced today that HSBC Securities (HSBC) will pay $26.8 million to settle allegations that it purchased and securitized unfair residential mortgage loans in violation of Massachusetts law.

Today’s case follows others brought by the AG’s Office against investment giants Goldman Sachs, Morgan Stanley, Royal Bank of Scotland, Countrywide Securities, JPMorgan, and Citibank regarding their roles in the subprime lending crisis. In pursuing these cases, the AG’s Office has recovered more than $375 million, including relief for thousands of residents across the state, in connection with securitization claims.

While HSBC did not originate the subprime loans in this case, it did purchase these loans from subprime lenders and securitize them. As noted in the assurance of discontinuance, filed Friday in Suffolk Superior Court, the AG’s Office alleges that many of these loans were presumptively unfair under Massachusetts law because they had debt-to-income ratios over 50 percent, included substantial prepayment penalties, had loan-to-value ratios over 97 percent, and included other problematic features.

Under the terms of the settlement, HSBC will pay a $5 million payment to the Commonwealth and compensate governmental entities that allegedly suffered harm from HSBC’s actions, including cities and towns that incurred extra expenses due to the foreclosures caused by the unfair loans, such as Brockton, Lawrence, Lowell, Lynn, Springfield, and Worcester, Massachusetts. The remaining $20 million will be made available to eligible homeowners for principal reductions and related payments on the loans of eligible consumers and to assist borrowers who suffered foreclosure.

More than 60 homeowners could be eligible to receive payments in Middlesex and Worcester counties under the HSBC settlement. Approximately 50 homeowners could be eligible to receive payments in Essex county, Massachusetts. Approximately 25 homeowners could be eligible to receive payments in Bristol, Hampshire, Norfolk, Plymouth, and Suffolk counties, Massachusetts. Eligible consumers will receive a notice from the Office of the Attorney General. Homeowners with questions should contact Attorney General’s Insurance and Financial Services Hotline at 1-888-830-6277.

Attorney General Maura Healey made the announcement.

HSBC’s securitization practices contributed to a financial crisis that deeply harmed Massachusetts communities and caused families to lose their homes,” AG Healey said. “We will continue to help consumers who were sold toxic mortgages by these banking institutions and are pleased that this settlement will provide significant relief for families that have suffered harm from unsustainable subprime loans.”

The HSBC case was handled by the staff of Attorney General Maura Healey’s Insurance and Financial Services Division, including Brook Kellerman, Burt Feinberg, Madonna Cournoyer, Peter Leight, Lilia DuBois, Diane Prend, and Glenn Kaplan.

Jasmin Polanco, 37, Methuen, Massachusetts, a real estate attorney was sentenced today in connection with a sweeping conspiracy to defraud banks and mortgage companies by engaging in sham “short” sales of residential properties in Merrimack Valley, Massachusetts.

Co-defendants Vanessa Ricci, 41, Methuen, Massachusetts , a  mortgage loan officer, pleaded guilty in March 2018 to one count of conspiracy to commit bank fraud and was sentenced to six months in prison, three years of supervised release and ordered to pay restitution of $963,730 http://www.mortgagefraudblog.com/?s=Jasmin+Polanco; Greisy Jimenez, 50, Methuen, Massachusetts , a real estate broker, pleaded guilty to two counts of bank fraud and one count of conspiracy to commit bank fraud and is awaiting sentencing; Hyacinth Bellerose, 51, Dunstable, Massachusetts,  a real estate closing attorney, was sentenced in March 2017 to time served and one year of supervised release to be served in home detention after pleading guilty to conspiracy to commit bank fraud.  Polanco was sentenced by U.S. Senior District Court Judge Douglas P. Woodlock to 15 months in prison, three year of supervised release and ordered to pay $1,224,489 in restitution. In March 2018, Polanco pleaded guilty to one count of conspiracy to commit bank fraud.

The charges arose out of a scheme to defraud various banks via bogus short sales of homes in Haverhill, Lawrence and Methuen, Massachusetts, 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 existing 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 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 scheme, Polanco, Jimenez, 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 conspirators falsely led banks to believe that the sales were arms-length transactions between unrelated parties; in fact, 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 also submitted phony earnings statements in support of loan applications that were submitted to banks in order to obtain new financing for the purported sales. In addition, the defendants 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.)

United States Attorney Andrew E. Lelling; Christina Scaringi, Special Agent in Charge of the Department of Housing and Urban Development, Office of Inspector General, New York Field Office; and Christy Goldsmith Romero, Special Inspector General of the Troubled Asset Relief Program, made the announcement. Assistant U.S. Attorney Stephen E. Frank, Chief of Lelling’s Economic Crimes Unit, and Assistant U.S. Attorneys Sara Miron Bloom and Victor A. Wild, also of the Economic Crimes Unit, prosecuted the cases.