Mortgage Broker and Real Estate Investor Plead Guilty, Sentenced in Connection with Operating Elaborate Mortgage Fraud Scheme
Also ordered to Pay $350,000 in Restitution to Victims
Real estate investor Brian Frank, age 32, of New Hartford, NY, pled guilty in Suffolk Superior Court yesterday to charges of Larceny over $250 (78 Counts), Making or Publishing False or Exaggerated Statements (26 counts), and Attempting to Make or Publish a False or Exaggerated Statement (2 counts). Superior Court Judge Mitchell Kaplan sentenced Frank to serve two and a half years in the House of Correction. Judge Kaplan also sentenced Frank to an additional year in the House of Correction, to be suspended for a probationary period of five years. Frank must also pay restitution in the amount of $250,000 to the homebuyer victims.
Mortgage broker Linda Defeo, age 28, of Springfield, also pled guilty yesterday to charges of Larceny over $250 (10 counts), Making a False or Exaggerated Statement (6 counts), and Attempted Larceny over $250. Judge Kaplan sentenced Defeo to one year in the House of Correction, with one month to serve, and the balance suspended for a probationary period of three years. Defeo must also pay $100,000 in restitution to the homebuyer victims.
On April 8, 2010, co-defendant and former attorney Bruce Namenson, age 47, of Walpole, pled guilty to charges of Larceny over $250 (18 Counts), Making or Publishing False or Exaggerated Statements (9 Counts), and False Written Reports by Public Officer or Employee (4 Counts). After the plea was entered, Namenson was sentenced to serve 2 years in the House of Correction, one year to serve, with the balance suspended for 3 years.
Three co-defendants have also been charged in connection with this case: real estate investors Joshua Brown, age 29, of Brockton and John Sweetland, age 28, of Yorba Linda, CA and mortgage broker, Brian Arrington, age 39, of Boston. Authorities allege that Brown and Sweetland, with help from Frank, fraudulently obtained approximately $12.5 million in loans from more than a dozen financial lending institutions to purchase multi-family homes, from which they made approximately $2 million dollars in proceeds. The remaining defendants are charged as follows:
Joshua Brown (Boston Equity Investments, aka BEI)
Larceny over $250 (78 Counts)
Making or Publishing False or Exaggerated Statements (26 counts)
Attempt to Make or Publish a False or Exaggerated Statement (2 counts)
John Sweetland (BEI)
Larceny over $250 (33 Counts)
Making or Publishing False or Exaggerated Statements (11 counts)
Attempt to Make or Publish a False or Exaggerated Statement (3 counts)
Brian Arrington (mortgage broker)
Larceny over $250 (24 counts)
Attempted Larceny Over $250
Making a False or Exaggerated Statement (13 counts)
The Attorney General's Office began an investigation into the defendants' activities in April 2008, after receiving complaints from homebuyers. Investigators discovered that Brown operated Boston Equity Investments ("BEI") in Boston, while Frank operated Freedom Equity Investments (FEI) in Hillsborough, NJ. Authorities allege that FEI recruited persons interested in investing in multi-family homes through BEI. These investors unknowingly assisted BEI commit this fraud. In addition, Sweetland operated Boston Investment Marketing (BIM), another BEI recruitment wing in Canton, which would identify potential investors. BEI advertised itself as a real estate investment company, although BEI and its employees were not licensed real estate brokers. BEI advertised online and at real estate conventions in several states.
Frank, and allegedly Sweetland and Brown, identified owners of multi-family properties who had properties for sale for long periods of time. They would approach the property owners and convince them to give BEI an "option" to sell these properties at prices below the current list price. BEI simultaneously recruited homebuyers to buy the same properties as "investments," promising them that in return for their purchasing properties through BEI, BEI would renovate, rent and resell the properties. BEI told the homebuyers that their investments would help revitalize neighborhoods in the Greater Boston area. BEI acquired inflated property appraisals for the sellers' properties. The appraisals were consistently well above the list prices that the sellers could not sell the homes for.
Authorities allege that BEI obtained false purchase and sale agreements between the homebuyers and sellers. Unbeknownst to the homebuyers and lenders, BEI arranged for the sellers to receive much less money for the property sales than the maximum amount of financing that BEI was able to fraudulently extract from the lenders in the homebuyers' names. In the end, authorities allege, at the home sale closings, BEI would, unbeknownst to the homebuyers and lenders, pocket the difference, which was usually between $50,000 and $100,000 and sometimes as much as $150,000.
Investigators also discovered that Brown, Frank and Sweetland conspired with mortgage brokers Linda Defeo and Brian Arrington to submit loan applications to financial lending institutions with false information in order to secure 100% financing for the homebuyers' purchases. Authorities believe that BEI, with Arrington's assistance, inflated borrowers' incomes and savings, misrepresented where and for how long the borrowers had been employed (if the borrowers were employed at all), and falsely stated that the borrowers intended to use the properties as primary residences instead of as investment properties (many of the borrowers lived out of state). BEI also allegedly deposited money into some of the homebuyers' bank accounts to make it appear as if they qualified for mortgage loans. Several homebuyers acquired mortgage loans through Defeo and Arrington to buy several properties through BEI. In these instances Defeo and Arrington, in conspiracy with BEI, did not disclose the homebuyers' new debts to the lenders thereby misrepresenting the extent of the homebuyers' debts on their loan applications. Defeo and Arrington rushed the homebuyers through the loan application process and told them that they did not have to disclose all of their debts to the lenders.
BEI submitted the inflated property appraisals and false purchase and sale agreements to the lenders through Arrington and Defeo. Arrington and Defeo, on behalf of BEI, did not disclose to the lenders that BEI had an option to sell the properties at lower prices. In these agreements, the sellers agreed to receive far less for the sales of their properties than the amounts the financial institutions were lending to the borrowers to purchase the properties. Instead, on the homebuyers' loan applications, Arrington and Defeo falsely claimed that there were true, contracted purchase and sale agreements between the homebuyers and sellers for the greater amounts of money. The lenders relied on these misrepresentations submitted in the loan applications and other documents to approve loans for the homebuyers.
After the homebuyers purchased the properties, BEI intentionally did not fulfill the promises it made, including renovating and reselling the properties. The homebuyers and lenders were left with properties not worth the loans the borrowers obtained to purchase the properties. The homebuyers' credit was ruined, and they were severely financially injured. All of the homes were foreclosed or short sold at great losses to the homebuyers and lenders. Neighborhoods in the Boston area, particularly in Dorchester, East Boston and Chelsea, were left with empty and unrented homes.
The lenders required that the homebuyers bring cash, sometimes tens of thousands of dollars, to the real estate closings. Former attorney Bruce Namenson, in conspiracy with BEI, misrepresented on closing settlement statements that the home buyers brought cash to the closings, when he and BEI knew that the borrowers did not do so. Namenson, in conspiracy with BEI, sent a business associate to several states to obtain homebuyers' signatures on documents critical to the real estate closings. Later, Namenson notarized the documents claiming that the homebuyers had signed the documents in Namenson's presence in Massachusetts. In addition, the lenders required that Namenson purchase title insurance for the closings. Namenson represented to the lenders that he was using the borrowers' money to do so. Namenson did not purchase title insurance and retained the borrowers' premiums for himself instead.
A Suffolk County Grand Jury returned indictments against all six defendants on December 21, 2009. Brown was arrested the same day and was arraigned in South Boston District Court and subsequently released on $75,000 bail. Frank was arrested on December 19, 2009, in New York and was subsequently brought back to Massachusetts by Massachusetts State Police. Sweetland surrendered himself to authorities on January 7, 2010, at arraignment.
On January 6, 2010, all six defendants were arraigned in Suffolk Superior Court where they entered pleas of not guilty. Arrington, Defeo and Sweetland were released on personal recognizance. Brown and Frank were released on $75,000 bail each. Yesterday, Frank and Defeo pled guilty to all charges and were sentenced. Arrington is due back in court on November 23, 2010. Sweetland did not appear in court yesterday and a warrant has been issued for his arrest. Brown is presently scheduled to appear in court on February 7, 2011.
The case is being prosecuted by Assistant Attorney General Brendan O'Shea with the assistance of Investigator Scott Gisetto and Victim Witness Advocate Shannon Legrice. Massachusetts State Police assigned to the Attorney General's Office and the Attorney General's Financial Investigations Division also assisted in the investigation.