Editor’s Note: This story is from the Globe archives. It originally ran on Dec. 13, 2009.
When times were good, Michael David Scott did very, very well.
The smooth-talking Trinidadian was a natural at selling a piece of the American dream, buying and renovating three-deckers in some of Boston’s toughest neighborhoods, then reselling them as condominiums, often to first-time home buyers eager to cash in on the city’s unstoppable housing boom.
But when the real estate market began to cool, Scott started selling a very different sort of dream. He amped up his sales pitch, attracting buyers from Virginia, New Jersey, and Maryland to purchase condominiums as investments, units they never expected to live in and in some cases never saw. His trademark became too-good-to-be-true deals - buyers later contended - with no risk and profits assured.
Many wound up losing just about everything.
From 2004 to 2008, Scott and his partners bought at least 50 buildings for a total of $26.6 million, and converted the units into 169 condominiums that sold for $49.8 million, a Globe analysis shows.
Today, 101 of the units - more than half - have gone into foreclosure and are selling for a fraction of their value, according to records on file with the Suffolk County Register of Deeds.
Scott’s business dealings offer a window into the world of a major player in the real estate bubble and foreclosure bust that has wreaked havoc in the city, especially in Dorchester, the Boston neighborhood hardest hit by foreclosures. Built in a frenzy of speculation, his empire collapsed almost as fast, leaving behind a trail of abandoned property, foreclosures, litigation, and ruined dreams.
More than a dozen home buyers told the Globe they were drawn in by Scott’s pitch and wound up buying properties based on promises that later proved false. Thirteen people who have done business with Scott, including buyers, a lender, a recruiter, and an appraiser, say they have been interviewed by FBI agents about their real estate dealings. The FBI would not confirm or deny an investigation.
Scott, 44, of Mansfield, declined repeated requests to comment for this report. In a legal brief filed in opposition to a lawsuit by two disgruntled buyers, Scott said he did not commit fraud or make any misrepresentations about property sales. Plaintiffs were “well aware of the investments they were making and the possible risks,” the document said. One of his lawyers, Gabriela Mendoza, dismissed as unfounded the accusations from some condo buyers that her client committed mortgage fraud. The buyers are trying to blame others for their own imprudence, she said.
“My client is a real estate developer. He owns and sells property. He cannot commit mortgage fraud if he doesn’t do loans,” Mendoza said. “There is supposed to be some due diligence from the buyers.”
She declined to comment further on the allegations against her client.
In April, Scott filed for Chapter 7 bankruptcy, seeking relief from more than 200 creditors by liquidating his assets. His creditors include his sister Carole Clarke, who said in a bankruptcy hearing that she purchased a condominium from him that was never made habitable, and Bank of America, which alleged in a lawsuit that Scott led a team that defrauded the bank of $1.5 million.
In a June bankruptcy hearing, Scott described the real estate world in which he operated, where properties were bought and sold like Monopoly cards and six-figure deals were made with verbal agreements.
Asked by a creditor’s lawyer whether he ever received “cash in a bag” of $50,000 or $100,000 during a real estate closing, Scott refused to answer, citing the Fifth Amendment privilege against self-incrimination. This refusal automatically requires that a referral be sent to the US Trustee Program, an arm of the Department of Justice, for further investigation, said Warren Agin, the Chapter 7 trustee in charge of Scott’s case.
“It is a sensitive case. There are allegations of fraud and other wrongdoing, and we are looking into them,” Agin said.
Far from remorseful, Scott said at the June hearing that he considered himself the victim of swindlers, among them a contractor, an appraiser, and a real estate agent.
Scott’s bankruptcy lawyer, Apolo Catala, also declined to comment for this article.
The story of Scott’s rise and fall is, in the end, a murky and complex affair in which almost everyone lost out and no one comes off well. It is best told through the experience and words of some of the key players involved - the buyers, lenders, and appraisers who made these ill-starred transactions possible.
Jeremy and Stacey Grieff were typical customers of Michael David Scott.
The young couple lived out of state - in Virginia Beach, Va. They knew little about real estate investing, less about Boston, and had an annual income of $84,000 when they got involved.
Soon they would be in way over their heads.
The Grieffs, in an interview and a lawsuit they filed last year in Middlesex Superior Court, said that in 2007 they were drawn in by Jerrold Fowler of Norfolk, Va., a former colleague of Jeremy’s who worked as a scout for Scott, identifying and courting potential buyers.
“He told us it was an investment situation. They purchased the properties, converted them into condos or did repair work to them, and resold them,” Stacey Grieff, a middle school teacher, said in a phone interview. “We were told closing costs were paid and we had no obligation.”
Mortgage costs would be paid out of rental income from the units - money Scott and his team would collect and mail to them or deposit directly in an account. The Grieffs expected to ride the market up and sell for a profit within two years, their lawsuit contends.
In the end, the Grieffs agreed to buy four properties - two in Roxbury, one in Dorchester, and one in Watertown - for a total of $1.5 million. In March 2007 they flew to Boston to meet Scott and close the deals. Also present were Michael Anderson, a Stoneham real estate lawyer who represented Scott in many of his property transactions, according to public records, and Marie Firmin, a Dorchester resident who managed some properties for Scott.
The couple said they signed blank mortgage applications and legal documents that gave power of attorney to Firmin to buy properties on their behalf. They obtained mortgages totaling $1.35 million with the help of James Driscoll, a mortgage loan officer with Gateway Funding Diversified Mortgage Services, based in Pennsylvania. They paid no closing costs and, instead, received about $5,000 cash back, Stacey Grieff said.
At first, everything seemed to work as promised. Scott or someone from his team gave them directly or deposited into their bank accounts a total of $120,000 to pay mortgage bills for more than a year, the Grieffs alleged in their lawsuit. Delighted by how easy it all seemed, the couple even referred some of their friends to Scott, receiving $1,000 to $2,000 for each prospect, Stacey Grieff said.
Their referrals included Sean Vaillancourt, a Navy enlistee who lives in Virginia Beach. He says he bought two Dorchester properties with the understanding that all he had to do was sign his name; Fowler and Scott would handle the rest. Sheila Debnam, a New Jersey single mother, said the Grieffs helped persuade her to purchase a Dorchester condominium in October 2007 for $270,000.
Soon they would all regret ever becoming involved.
Vaillancourt, 27, said he returned from a seven-month-long deployment off the coast of Somalia to find that the two properties he owned were in default. Debnam unloaded her condominium in June to a real estate company for $1, paid $500 to close the deal, and says her credit is now in shambles. Both say they have shared their stories with federal investigators.
“I feel like a rape victim would feel. I feel like I was stripped of my dignity and my confidence in others,” said Debnam, 43.
The Grieffs started to worry when the mortgage payment checks from Scott started arriving late. They reexamined their paperwork and said they noticed, for the first time, some unsettling details: The mortgage documents they had signed falsely described the properties as their primary residences, a claim that probably helped them qualify for financing. They also were listed as having paid the closing costs, which they said they had not.
Months after purchasing their first units, the couple confronted Scott about the late and missing payments. Scott, Stacey Grieff said, told them one of his partners had fled with some money, leaving him short on funds. Soon they could not reach Scott at all.
They learned later that renovations were never completed on a $259,000 condominium on Lyndhurst Street in Dorchester. The condo is one of 12 in two adjacent buildings that Scott’s company, Southeast Properties, purchased in the spring of 2007 for $1.3 million and resold within weeks to investors, the Grieffs among them, for $3.2 million. The empty buildings, with peeling paint and kitchens devoid of appliances, were later boarded up by the city because of health and safety violations.
Stacey Grieff said she and her husband were up nights worrying about their ruined credit and the botched deals - all of which went into default. Then they decided to fight back. In September 2008, they used some of the money Scott had sent them to hire a lawyer and file a lawsuit charging that Scott and his team defrauded them. Scott has denied the allegations, saying the buyers knew what they were getting into. The Grieffs are seeking an unspecified amount in compensatory damages and a judgment that would rescind the deeds and protect them from possible legal claims.
“We never ever went into this thinking it could possibly do this much damage, not just to us, but to your whole community up there,” Stacey Grieff said.
Another part of Scott’s business was buying buildings and reselling them swiftly - sometimes the same day - to small or first-time developers. One of those buyers was Antonio Rodrigues of Dorchester, who wonders whether he will ever recover financially from his decision to follow Scott’s advice to purchase a property.
Rodrigues, a 50-year-old Cape Verdean immigrant, says Scott persuaded him to purchase a three-family building on Devon Street in Dorchester for $539,000 in 2006, expecting to turn it around quickly and make a nice profit. Rodrigues learned only later that Scott had acquired the building for $420,000 that same day, making a quick $119,000 profit.
Rodrigues, in a consumer complaint to the state attorney general, alleged that Scott then sold one of the units without his permission and kept the proceeds - $325,000. Rodrigues said the state advised him to take his complaint to the FBI, and he is still waiting for the agency’s response.
Rodrigues took out a loan on his family home to pay for renovations at Devon Street, but then found he could not afford the hefty mortgage payments on the remaining two units. He has lost one to foreclosure and is struggling to keep the other. His credit is shot, he said, as is his savings.
“It’s so confusing. I don’t know how he did it, how he made me pay that much money,” said Rodrigues, a father of six who works in a hardware store. “Dave destroyed my life completely.”
Scott’s older brother Walter, 52, also says he lost big in a business deal with his sibling. Walter said his brother persuaded him to buy a three-decker in 2007 on Mount Vernon Street in Dorchester for $610,000. He said he understood he would put up the money and his brother would renovate and help sell the units as condominiums within three months.
Nothing worked as planned. The renovations took too long and Walter defaulted on the mortgage. The units eventually sold for a total of $943,000, but Walter said he got only a fraction of the profits he was promised - just $30,000, not enough to cover his mortgage expenses.
He said his brother, the youngest of four siblings, has created a wedge in what was once a close middle-class family from the Caribbean island of Trinidad.
“I’ve lost everything because of all this. He’s my brother. I trusted him,” he said.
Scott’s deals were often driven by the same group of key players: the recruiters, mortgage lenders, appraiser, and closing lawyer whose names appear repeatedly in sales documents.
Marie Firmin, an educational consultant from Dorchester and a manager of some Scott properties, was one of the first to serve as a reference. Firmin, 60, told the Globe she met Scott through good friends in 2005 and sent his way about six people who bought in. Among them were Firmin’s son and two nephews, who purchased six condominiums, all of which eventually fell into foreclosure.
Firmin grew increasingly wary when Scott started to sell units to buyers from out of state with hefty mortgages she knew could not be covered with rent from low-income tenants. She said she was never involved in the financial negotiations but still regrets being involved at all.
“When I started working with him he was trying to be helpful,” said Firmin. “He was trying to empower the community. I think greed took control.”
Another recruiter, Jerrold Fowler, said he was barely 21, living in Norfolk, Va., and earning about $40,000 as a computer programmer in 2006 when he met Scott through a friend.
Fowler had read a 2005 Globe story about Scott’s efforts to reinvest in Dorchester in which Scott told a reporter: “It is gratifying to see people move into properties that they never expected they would be able to buy. That’s the American Dream.”
Fowler wanted a piece of that dream. Scott helped him purchase two Dorchester properties and find tenants and property managers.
Impressed by how easy the deals seemed, Fowler quit his day job and launched a company, Advantage Investment Consultants, which sought “to revitalize the Greater Boston metropolitan area” through “passive real estate” investment, according to its website.
Fowler would fly to Boston and visit properties with potential buyers or receive official power of attorney to sign legal documents for those who could not attend closings, he said. For each successful sale, Fowler said, Scott paid him $6,000 to $7,000, he said. Scott usually gave the buyer a portion of that - $3,000 or $4,000 - at closing to help them cover costs.
By the fall of 2007, nearly a year after he first got involved, Fowler started to hear complaints from his clients, about 15 people, all friends and family. Mortgages stopped being paid. Units went unrented. He realized he did not understand what he had gotten himself into.
Fowler now defends his participation in the deals, saying all real estate agreements and terms were set by the investors and Scott. Fowler said he provided information to FBI agents; he said they asked about Scott, Driscoll, and Gateway Funding.
“Everybody is pointing fingers at everybody else right now,” said Fowler.
About 35 different lenders approved mortgages for condominiums developed by Scott. But Gateway, with about 50 loans, stood apart as the largest funder of Scott-related properties, financing more than a quarter of the deals.
Officials from Gateway, which resells loans to bigger financial institutions, said they first discovered problems when they were forced to buy back $7.6 million in mortgages originated by Driscoll because the lenders that purchased them said they “had no value.”
Bruno Pasceri, Gateway’s chief executive, says he believes most of the loans involving Driscoll and Scott were based on false appraisals and straw buyers.
He said many buyers falsely claimed on loan documents that they were purchasing second homes to qualify for better rates and lower down payments when their true intent was to buy investment properties. More than half of the out-of-state buyers who purchased condominiums with financing from Gateway made that claim, records show.
Pasceri said the company has provided documents related to the loans to a number of federal agencies, including the FBI, but would not go into more detail.
“The loans were obviously fraudulent,” said Pasceri. “We took a huge loss.”
Driscoll, who was hired in 2004, left the company in 2007 before problems with the loans became obvious, Pasceri said.
Driscoll, who now works at Mortgage Master Inc. in Danvers, said he has done nothing wrong. He is a licensed mortgage originator with no consumer complaints on file, according to the state.
“I don’t believe I committed any crime,” Driscoll said in a short phone interview. “I had no involvement beyond just being a lender and meeting the guidelines of what I was given.”
But buyers like David Brown, 27, of Chesapeake, Va., still can’t figure out how they qualified for a loan at all. Brown said he didn’t even have a credit card and earned $11 an hour as a medical records coordinator when he was approved for a $382,500 mortgage with Gateway Funding.
Brown said he didn’t even understand he was getting a mortgage when he first signed real estate documents in December 2006. He paid no closing costs or down payment yet ended up owning a condominium that he lost to foreclosure in June.
“There’s no way in the world I could pay the mortgage,” Brown said. “Everything went so fast.”
CLOSING THE DEAL
Before a mortgage can be issued and a property sold, an appraiser must confirm the home’s value.
Appraisers’ reports are not public records, so it’s unclear who evaluated the many condominiums Scott and his partners developed.
But Dorchester native Marianne Baker was identified as an appraiser on Scott deals by several disgruntled buyers. And Baker, in an interview, confirmed that she appraised as many as 100 condos developed by Scott - units she described as generally “high end” with granite countertops, stainless steel appliances, and upscale handiwork. The licensed appraiser was paid a fee for each unit she appraised.
Now Baker, facing questions from the FBI and a legal battle with Scott, wonders whether she was taken advantage of by the developer. In particular, she wonders what happened on Parkman Street - a residential street in Dorchester where Scott purchased three adjacent six-unit apartment buildings in 2007 for $2.2 million and resold them as condominiums for $4.9 million to 18 buyers, 11 of them from out of state.
According to an appraisal obtained by the Globe, Baker described one unit as a “garden-style” offering “a new kitchen with new stainless steel appliances, new counter tops, cabinets, flooring, and a new bath.”
But renovations at the unit were not completed until months later, said condominium owner Sheila Debnam.
Concerned about her purchase, Debnam asked real estate agent Melvin Vieira Jr., to look at her unit. When he toured the building, Vieira found dirty hallways and half the apartments unfinished.
“How did the appraisers walk in the building and say they were completed units and get them to give the loans?” said Vieira, who works for RE/MAX Landmark in Milton.
Baker said that when she entered the Parkman Street buildings contractors were in the midst of renovations. Workers were everywhere. Granite countertops leaned against walls and appliances were ready for installation. She had no reason to believe the units wouldn’t be completed.
“As far as I was concerned the units were complete,” said Baker. “I don’t know if it was a staged thing or not.”
At the other end of the real estate process is the closing attorney. In about 75 percent of the condominium purchases - or about 138 sales - Scott was represented by Stoneham attorney Michael Anderson, according to a Globe review of property records.
Anderson declined to comment. He was originally named by the Grieffs in their lawsuit but later was dismissed from the suit. Anderson’s attorney, Michael J. Stone, told the Globe in an interview that in the Grieffs’ case, “Mr. Anderson conducted himself appropriately.”
WHAT COMES NEXT
Scott has little to show for his years of frenzied deal-making.
He bought and sold millions of dollars worth of property, but now says he’s broke. When he filed for bankruptcy in April, he reported assets of about $1.4 million and owed as much as $6.2 million to more than 200 creditors.
He’s started a new real estate company, Surrey Global Investments Inc., that helps to negotiate short sales for distressed homeowners who need to sell their properties for less than they owe on their mortgages.
The bankruptcy petition put on hold eight lawsuits currently filed against Scott. They include the one by the Grieffs and the civil suit Bank of America filed in January alleging that Scott led a check-cashing scheme that defrauded the financial institution of $1.5 million with the help of two former bank employees. The former employees had both purchased condominiums from Scott.
And Scott’s name has come up in another case, suggesting that there could be more legal troubles ahead. Last week, a former assistant bank manager who was named in the Bank of America civil suit pleaded guilty in federal court to nine counts of wire fraud related to real estate deals in Dorchester and Roxbury.
Clarista Bramble, 59, of Randolph, admitted in US District Court that she created false documents knowing they would be used to fraudulently secure mortgage loans. Scott and his partners developed the properties, according to public records.
As the legal cases move forward, developers, investors, and home buyers are touring and purchasing some of Scott’s former condominiums.
Local developer Michael Stella, who has purchased several units, first spoke about his concerns with the Dorchester Reporter, a weekly that in 2008 detailed how many of Scott’s units were sold to out-of-state buyers.
Back in 2007, Stella was amazed at how Scott could turn around condominiums on short notice without even putting up a “for sale” sign - at a time when the housing market was slowing. He grew suspicious and then angry when he saw that many of the units quickly fell into foreclosure.
Since then he’s been shocked at the terrible condition in which some of the units were left: Homes sold for top dollar appear never to have been improved at all. Some were empty, others filled with trash.
“These deals yielded destruction in the neighborhoods I care about,” he said. “It’s frightening how much money was pulled out of town.”