Developer’s easy-money pitch left a trail of ruin

12.15.09

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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.

THE BUYERS 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 …

Read the original article at Boston

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