Massachusetts man sentenced for role in short-sale assistance fraud

A principal who ran a short-sale assistance firm received a seven-month prison sentence this week for participating in a scheme in which mortgage lenders and investors lost nearly $500,000, according to a press release issued by the U.S. Attorney’s office in Massachusetts.

Gabriel Tavarez of Westminster, Massachusetts, also was sentenced to two years supervised release and ordered to pay $475,458 in restitution by U.S. District Court Judge Nathaniel Gorton. Tavarez previously pled guilty to aggravated identity theft and conspiracy to commit wire fraud.

The scheme highlights a risk that could grow as distressed borrowers exit forbearance. If their home is worth less than the mortgage on it, they can ask the lender to agree to a sale of the property even though the proceeds from that transaction will fall short of the amount due. While the share of homes considered underwater on their mortgages is at a record low due to high home-price appreciation, the number of households with negative equity is still relatively high at 1.1 million.

In their scheme, Tavarez and co-conspirator Jaime Mulvihill, either directly or through employees of their company, Loss Mitigation Services, made false claims that mortgage companies had agreed to pay LMS fees from the proceeds of short sales. Mortgage companies would typically forbid this.

To get mortgage companies to pay the fees, Tavarez and Mulivihill disguised them using falsified settlement statements, pre-approval letters and communications that purportedly came from mortgage brokers.

Mulvihill was sentenced in February 2020 to six months in prison after pleading guilty to his role in the conspiracy.