Globe Staff / August 29, 2010

http://www.boston.com/business/articles/2010/08/29/boston_developer_indicted_in_easy_money_condo_pitch/

A Boston developer has been indicted on federal fraud charges in a real estate scheme that left a trail of abandoned and blighted properties in already struggling city neighborhoods.

Michael David Scott of Mansfield, the 44-year-old owner of Southeast Properties, was indicted Thursday on 62 counts of wire fraud, bank fraud, and money laundering in US District Court in Boston, according to the US attorney’s office. He is accused of falsifying loan information that allowed borrowers — including many with modest incomes — to obtain hundreds of thousands of dollars in loans and buy condominiums in Roxbury and Dorchester at the height of the housing price bubble.

Neither Scott nor his Boston lawyer, former federal prosecutor William Kettlewell, responded to requests for comment yesterday.

If convicted, Scott faces fines and 10 to 30 years in jail for each charge.

US Attorney Carmen M. Ortiz said the scheme wreaked havoc not only for buyers and lenders but for residents who live in those neighborhoods.

“Frauds of this kind line the pockets of unscrupulous schemers at the expense not only of mortgage lenders, but of so many homeowners who saw property values in whole neighborhoods decimated,’’ Ortiz stated in a statement.

The Globe reported on Scott’s failed real estate dealings in February and December 2009. The newspaper’s analysis of Suffolk County deeds showed that Scott and his associates bought at least 50 buildings in Roxbury and Dorchester for $26.6 million between 2004 and 2008 and converted them into 169 condominiums, which sold for $49.8 million. In December, 101 units were in foreclosure, the Globe reported.

The FBI would not confirm or deny investigating at the time, but more than a dozen home buyers told the Globe they fell for Scott’s sales pitch. They said Scott promised to regularly deposit rental income in their bank accounts that would cover their mortgage costs. Eager to profit off the booming housing market, several buyers said they planned to sell the condos after a few years.

Buyers included a 27-year-old Navy enlistee in Virginia Beach, a single mother in New Jersey, and a 21-year-old software engineer also from Virginia. Stacey Grieff, a Virginia schoolteacher, and her husband, Jeremy, who had a combined income of $84,000 at the time, bought four properties from Scott. The Grieffs told the Globe they signed blank mortgage applications and legal documents giving Scott and his associates authority to buy on their behalf.

Many regretted the deals when the bank deposits they relied on from Scott dried up. Some of the properties went into foreclosure and had to be boarded up by the city because of health and safety violations.

In the indictment, Scott is accused of 28 counts of wire fraud, 12 counts of bank fraud, and 22 counts of money laundering after an investigation by the Federal Bureau of Investigation and the Internal Revenue Service. Scott and his associates allegedly recruited investors, selling them a too-good-to-be-true dream — a no money down “investment opportunity.’’

Scott falsified key information on buyers’ applications to mortgage lenders, including buyers’ income, assets, down payment, and residence, prosecutors said.

The indictment also refers to associates who “acted in concert with Scott,’’ though they are not identified by name.

They “included individuals who recruited others to act as ‘straw buyers,’ one or more bank or credit union officer who created fraudulent verifications of deposits . . . one or more mortgage originator and mortgage broker who assisted in the creation and submission of fraudulent mortgage loan applications . . . and one or more closing attorneys.’’

Scott has been summoned to appear in US District Court in Boston on Sept. 13.