BOSTON – October 30, 2015 – (RealEstateRama) — A real estate attorney pleaded guilty today to participating in a far-reaching scheme to defraud banks and mortgage companies as part of a conspiracy involving sham “short” sales of numerous residential properties in the Merrimack Valley of Massachusetts.
Hyacinth Bellerose, 50, of Dunstable, Mass., pleaded guilty to one count of conspiracy to commit bank fraud. U.S. District Court Judge Rya W. Zobel scheduled sentencing for Feb. 4, 2016.
Bellerose colluded with others – including a Methuen loan officer and a Haverhill real estate agent who were not identified in the charging document – to defraud various banks through the use of bogus short sales of homes in Haverhill, Lawrence and Methuen. 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, and that generally result in the lender absorbing a loss on the loan and releasing the borrower from the unpaid balance. By 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. In this case, Bellerose colluded with others to feign a short sale and thereby defraud banks of the full value of the mortgage.
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 their homes worth less than the mortgage debt they owed. As part of the scheme, Bellerose and her co-conspirators submitted materially false and misleading documents to numerous banks in an effort to induce them to permit the short-sales – and thereby to release 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 the homes with their debt substantially reduced while Bellerose and others made money from the transactions fees associated with the fake sales. In some cases, the conspirators then re-sold the properties in genuine arms-length transactions for a profit.
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, and the sellers retained control of (and frequently continued to live in) the properties after the sale. In some cases, the purported third-party buyers were actually the spouses, parents or children of the purported sellers.
The conspirators submitted phony earnings statements in support of numerous loan applications that they submitted to banks on behalf of purported buyers, in order to obtain financing for the purported sales.
The conspirators submitted phony HUD-1 Settlement Statements to banks, as well as to the Federal Housing Administration, that did not accurately reflect the disbursement of funds in the transactions. (A HUD-1 Settlement Statement is a standard form, developed by the U.S. Department of Housing and Urban Development, that is used to document the flow of funds in real estate transactions. HUD-1 Settlement Statements are required for all transactions involving federally related mortgage loans, including all mortgages insured by the Federal Housing Administration.)
For example, in one transaction, the unnamed loan officer and the loan officer’s spouse signed two purchase and sale agreements, dated five days apart, in which they purported to agree to the sale of their Methuen home to a third party. In the first agreement, they purported to sell the property for $299,000. In the second, they purported to sell the property for $289,000.
The first agreement was provided to Chase Home Finance LLC, a subsidiary of J.P. Morgan Chase Bank, N.A., which held the first mortgage on the home, and also affirmed that they were unrelated and that there was no agreement that would allow the sellers to remain in the property after the sale. In fact, the purported buyer was the mother of one of the purported sellers, who intended to remain in the property after the purported sale.
To facilitate the transaction, the conspirators submitted to Bank of America a loan application on behalf of the purported buyer that falsely represented her employment status, and was accompanied by phony earnings statements. The conspirators also submitted to Bank of America the second purchase and sale agreement, reflecting the higher purported sale price of $299,000.
In connection with the purported sale, Bellerose prepared two HUD-1 Settlement Statements. One Settlement Statement was provided to Chase as the short-selling bank, and reflected a purported sale price of $289,000, and a purported buyer deposit of $15,216. The other Settlement Statement, which was provided to Bank of America and the FHA, reflected a purported sale price of $299,000, and a purported buyer deposit of $14,916. In fact, the purported buyer did not make any down payment toward the sale, which was financed entirely by the mortgage loan from Bank of America.
The charge of conspiracy to commit bank fraud provides for a sentence of no greater than 30 years in prison, three years of supervised release and a fine of $1 million. Actual sentences for federal crimes are typically less than the maximum penalties. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
United States Attorney Carmen M. Ortiz; 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, the Special Inspector General for the Troubled Asset Relief Program, made the announcement today. The case is being prosecuted by Assistant U.S. Attorney Stephen E. Frank, Deputy Chief of Ortiz’s Economic Crimes Unit.