From Blitz Conversion to Scratch and Dent

This article appears in the Dorchester Reporter.

There was a time when Peter Power knew some of the people who lived in the six-family houses across Parkman Street. But that changed after mid-September of 2007, when the three buildings were converted into condos, all within less than four weeks.

“The next thing I knew,” said Power, “nobody was living in them at all.”

By mid-October, a developer had bought all three buildings in separate transactions for a total of $2.2 million dollars. The units then sold, on paper, for a total of almost $4.9 million. All but one of them were sold within three days the after sale of their building. Lenders put up mortgages totaling $3.8 million.

Even more unusual was the assortment of condo owners—from the manager of the Bank of America Branch in Fields Corner, to buyers from Brooklyn, the Bronx, and even as far away as Atco, New Jersey and Norfolk, Virginia. On paper, some of them were owner-occupants. Others supposedly bought units as their second homes, or for investment—at a time when the condo market in much of Dorchester, and many other places, was in decline. Yet, judging from the difference between sales prices and mortgage amounts, the down payments for the units ran as high as $75,000.

Less than three years later, the developer, Michael David Scott, is under federal indictment for mortgage fraud, along with the bank manager, an attorney who worked on many of the transactions, and two other people accused of being recruiters for straw buyers. Scott and two other defendants pleaded not guilty last week. In the indictments, they are accused of paying the straws to buy units at falsely inflated prices, and making false statements to lenders about the buyers’ assets and down payments. Also pleading not guilty is the now former bank manager, Arthur Samuels, who stands accused of producing false documents and recruiting a straw buyer.

Before the first indictments were handed up late August, foreclosure petitions had been filed for 8 units in the buildings on Parkman Street. But, even without, in most cases, going all the way into foreclosure, the units that Scott sold for as much as $299,900 apiece would later be scooped up for as little as $55,000. Some were turned over for a nominal fee, with the buyer assuming the mortgage. In the interim, the buildings were painted on the outside and filled with new occupants.

But Power says the buildings still have problems. He mentions rodents attracted by trash containers that some residents don’t put out on the curb for collection. Plus, during the summer, there was a shooting in one of the buildings that, according to police, resulted in four arrests.

“It just brings the value of your house down,” says Power.

A lifelong resident of Dorchester, Power describes the buildings as a “flophouse” with “revolving tenants.” Saying he and his wife are thinking moving, he adds, “I actually do like Dorchester, but I don’t like what’s coming down the street right now. It’s not safe."


Federal authorities list fraudulent transactions by Scott and his collaborators on 48 units, all but six of them at locations in Dorchester—including the ones on Parkman Street. Most of the units have since been turned over to new owners. In at least one case, in a three-decker on Centre Street, there was a period when the doors and windows for one unit covered with plywood.

But there were also problems at another building listed in the indictment, a three-decker at 672 Adams Street.

“The lawn was disgusting. There was broken glass everywhere,” said a neighbor who described the building as “an eyesore.”

“We own our condo,” she said, “and we were afraid it would bring the price of ours down.”

Records show units in 672 Adams Street were all sold within a few days after it was bought under the name of Astoria Realty Trust. One unit was sold to Arthur Samuels. The others were sold to buyers from Virginia and Pennsylvania. Last year, foreclosure petitions were filed on two of the units. By February, all three units—which had sold less than two years earlier for a total of $870,000—were sold in separate transactions to a buyer from Quincy for a total of $140,900.

To buy all the properties listed in the federal indictment, Scott and his associates paid almost $6.2 million. On paper, the separate units sold—mostly within a few weeks—for a total of $13.9 million, while the mortgages put up by lenders came to almost $11.8 million. The highest loan totals were from Salem Five—more than $3.3 million—and Gateway Funding Diversified Mortgage Services—$4.4 million. And sources at both lenders say a loan officer who played a role in some of the transactions for Gateway later went to work for Salem Five.

Records show Scott and his associates, overall, sold more than one hundred units in Boston, mostly from condo conversions in Dorchester and Roxbury. Foreclosure proceedings were started on at least 80 of the units, while even some of the other units would be turned over in distressed sales. One lender—Gateway—wrote mortgages totaling more than $13 million for 44 of the units. Out of these, there would be foreclosure petitions filed on 35 units.

Many of the buyers purchased multiple units at multiple locations, and the same pattern can be found in multifamily transactions by other sellers. A partial review of records in Boston over the past few years shows foreclosure proceedings on more than 240 units against more than 100 owners of anywhere from 2 to 8 units. Some of those owners also turned over other units in distressed sales, without the filing of foreclosure petitions.

Researchers disagree about the effects of foreclosures on surrounding property, and they caution that poor conditions and price declines can also make distressed sales more likely.

The Rappaport Institute estimates a discount of 28% on sales of foreclosed (REO) properties, with the steepest discounts in areas where lenders have the most fear of property being damaged by vandalism.

According to a study by the Federal Reserve Bank of Boston, small multifamily properties make up less than one-quarter of the housing stock in Massachusetts, but they account for 33 percent of the post-foreclosure sales. Researchers say the REO property discounts were steepest in areas with lower income levels, a higher percentage of minority residents, and a sharper decline in overall prices.

In multifamily REO properties that were converted into condos, potential buyers face even more obstacles. With staggered foreclosures on individual units, observers say financing is more difficult to arrange in buildings without functioning condo associations.

“You’re going to be left with someone who’s going to be willing to buy for cash,” said one appraiser based in Dorchester, “and, when you’ve got the cash buyer, you’re going to be left with considerably less for it.”

Monthly reports by The Warren Group show that the sharp declines in the median prices for Dorchester condos have since been reversed, even if prices are still below the levels at the height of the housing bubble. In July and August of this year, after the expiration of federal tax credits, there was a fall-off in condo sales, though the median price was still getting higher.

According to a report by In Realty, housing prices strongly rebounded in the second quarter of this year in all areas of Dorchester. In the area where the market had been the weakest—between Blue Hill Avenue and Washington street—prices were going up, but volume was down. According to the report, one reason was the decrease in foreclosures.

Helping to bring down the number of foreclosures are the efforts to keep buildings occupied, sometimes through loan modifications or sales to occupants. The non-profit Boston Community Capital has arranged this kind of turnover for 85 units of housing, mostly in Dorchester, Roxbury, Mattapan, and Hyde Park.

“If we let nature and the market run its course, we have a real issue because of the inventory and the amount of time it’s on the market,” said the president of lending affiliates for Boston Community Capital, Patricia Hanratty. “If the people who are in one of these units can afford to buy it back at $70,000 or $80,000,” she asked, “why is that not under consideration?”

One reason is that, as speakers said last month in a Dorchester symposium on REO properties, non-profits are often outbid by for-profit competition. Though observers say the quality and intentions of the buyers are mixed, the competition increases demand for the housing supply. And, as the director of the city’s Dept. of Neighborhood Development, Evelyn Friedman explained, that can keep the property values from going too low to make repairs unprofitable.

At 672 Adams Street, the new owner of the condo units sold the whole building in June to another buyer from Quincy for $235,000. With recent signs of repair work, the neighbor says, “In the end it turned out OK.”

At a three-family house on Bernard Street, in the Franklin Field area, the people who bought units from Scott and his associates in late 2005 even managed to stay in the building, after getting help from Boston Community Capital. Records show the units, including one with less than 1,000 square feet, sold for more than $900,000. Foreclosure petitions would later be filed on two of the units.

Hanratty said Boston Community Capital intervened at Bernard Street and other locations because the mortgages had monthly payments that were “incredibly high,” adding that “nobody looked to underwrite these loans to say this is what somebody could afford.”

Despite renovations, Hanratty said, the units, as they sold almost five years ago, were “vastly overpriced."

"They were very high, even then,” she added. “Just thinking about a three-decker on Bernard Street as being worth almost a million bucks is pretty challenging.”

Three-decker Condos: Rebound or Relapse?

The following post appears as an article in the Dorchester Reporter.

To judge by sale prices for three-decker condominiums in Dorchester, the housing slump is over—at least at a few locations. The prices do have connections to names that repeatedly turn up in foreclosure filings, and they stick out like tree stumps in a flood of declining values, but that hasn’t stopped the flow of credit—whether from small lenders or high-profile companies such as JP Morgan Chase.

One example of a unit with a rising price is a top-floor condominium in a three-decker at 43 Whitfield St, a few blocks west of Codman Square. After selling for $330,000 in February, 2006, the unit would be taken by foreclosure. In April of this year, Fannie Mae let it go for $65,000. Then, after less than two months and a certain amount of improvement, there was a new buyer who put up $339,000, with a 20% down payment.

The last transaction in June also stands out as a turnaround for the seller. This was a company called SRC Investments, whose president and treasurer, Sirewl Cox, figured in nine other transactions that have drawn foreclosure filings since last September. It was a director of the company, Lord Allah, who bought Unit 3 at 43 Whitfield St from Fannie Mae in April. Later the same month, he bought Unit 1, for $45,000. Each time, he turned over the property the very same day to SRC Investments for $100.

Once SRC Investments took title, it received mortgages for both units from a lender based in Jamaica Plain, Capital Trust LLC. Though Capital Trust was lending to a company that had no record of previous borrowing in Suffolk County, the mortgage notes—for loans totaling $72,000--were signed by Cox.

Attempts to reach Cox at phone numbers in Easton, Mass., and a broker’s office listed in Dorchester were unsuccessful. Capital Trust has yet to respond to messages by email and phone asking how it could give mortgages to someone with a paper trail showing several recent bad loans.

On its website, Capital Trust says its approach to lending provides “speed and flexibility that traditional banking environments cannot provide.” The website also says Capital Trust can “provide creative financing options for opportunistic real estate transactions” and “quickly fund loans that make sense.”

But some observers of the real estate market in Dorchester say what doesn’t make sense is the Unit 3 sale price of $339,000. One observer said, even with “top of the line” renovations, the market value would only run as high as $300,000.

Another observer familiar with the market said, “Based on what the current market conditions are, I won’t imagine it would be three-anything.”

When the unit sold June 3, the buyer on the deed was a Christine Hoyte of San Francisco, California. JP Morgan Chase gave her a mortgage of $271,000, on condition that she use the condo as a second home. To complete the transaction, she also gave power of attorney to a stand-in named Larneshia Bryant, whose name appears on the mortgage note.

But other documents show Bryant also has connections to Cox. The two of them were shown as joint tenants of a condo in another three-decker in Dorchester, on Roxton St, where a lender filed to foreclose on the mortgage in February of this year. The unit is listed as being owned by Cox and Larneshia Bryant Alexander.

Over a period of three months earlier this year, there were foreclosure filings against Bryant on seven other properties. Two of the properties were bought from Cox in 2006, less than two months after he acquired them. Two others, also turned around in less than two months, were bought from another seller whose mortgage was signed by Cox with power of attorney.

Bryant has one other tie to Cox, through a business entity called Strategy Investments. The company was organized three years ago, with Cox as president and director, and Bryant as treasurer and secretary. The company bought two properties—one in Dorchester and the other in Roxbury—on which lenders would later file to foreclose.

Strategy Investments is listed on the directory of an office building at 40 Court Street for Suite 700. That’s also the official address for SRC Investments.

The notary who stamped the mortgage note for Unit 3 at 43 Whitefield St, Rebecca Konsevick, was asked whether Bryant was supposed to represent the interest of the buyer.

“That was my understanding,” said Konsevick.

When told about Bryant’s business ties to Cox, the notary was asked which side Bryant was on when she signed the mortgage for Hoyte.

Said Konsevick, “I have no idea.”

* * * * * *

The previous owner who lost all three units to foreclosure at 43 Whitfield St was Tariq Muhammad. He bought these units and another in a three-decker on Wheatland Ave from Iris and Kelvin Sanders. The other two units at Wheatland Ave were bought by Cox, and both also went down the road to foreclosure. Over the past three years, lenders have filed petitions to foreclose on a total of 12 units sold by Iris or Kelvin Sanders—all of them in Dorchester.

Muhammad also bought a three-decker for conversion at 310 Fuller St, with the help of a $120,000 loan from Kelvin Sanders. The house shows signs of repairs. After selling two units last year, each with 5% down payments for $355,000, Muhammad sold a third unit in February of this year for $365,000, with a down payment of 10%.

Just down the street, a realtor at Dorchester Associates, David Cahill, has been working on the sale of a whole three-decker which has been listed on the market for $369,021. When asked about the slightly lower price for a single floor sold in February--$365,000—Cahill called the figure “ridiculous.”

“When I see those prices pop up in the public record, I just shake my head,” he said. “It’s unbelievable.”

By way of comparison, Cahill noted the difficulty in selling condos at the new development right next to Ashmont Station, The Carruth. Based on that, Cahill says, it would be harder to sell condos in most other parts of Dorchester, especially if they’re farther away from rapid transit and commercial centers. The condos at 310 Fuller Street are roughly half way between Ashmont Station and the commuter rail stop at Morton Village.

“It’s not an area where people are going to go shopping for condominiums,” said Cahill.

But that didn’t stop Marcus Emile.

He was the buyer at 310 Fuller St who paid $365,000 and signed for a loan of $328,500. The loan was from Dreamhouse Mortgage Corporation. On its website the company says, “Our team of experienced mortgage experts is committed to your success and will go above and beyond traditional means to insure your satisfaction.”

The unit at Fuller St wasn’t the first for Emile. Four weeks earlier, he bought another property, in the St. Mark’s area, a three-decker unit at 15 Santuit Street for $340,000—from Kelvin Sanders. The down payment on the unit was 10% and the loan was from Countrywide Bank.

As with previous three-decker acquisitions by Kelvin and Iris Sanders, there was also a single buyer who took multiple units. In this case, the buyer was John Castodio. One deed shows him as being from Stonington, Connecticut. One of his mortgages for 15 Santuit St requires him to use the unit as a second home. On the other mortgage, the owner-occupancy requirement has been waived.

Cahill says the transactions at high prices make some owners more reluctant to sell at the normal market rate. And if more of the high-priced units go into foreclosure, he warns, there will be more converted three-deckers without active condo owners associations—which might limit the unit’s next sale to cash-only.

“No bank in their right mind’s going to finance it,” he said.

* * * * * *

Less than two years ago, some three-decker condo units in Dorchester, often with freshly made improvements, were selling for as much as $435,000. At least ninety units were sold in conversions—mostly in Dorchester—involving Michael D. Scott (and other variants of the name) and his associates or their business entities. So far, there have been at least eight foreclosure filings on the properties. Some of the units have recently been listed for sale, at prices as low as $174,000, and one unit—on Lafield St—sold June 30 for $190,000. Less than two years earlier, Scott sold the unit to a buyer from Maryland for $375,000.

Some properties bounce from one foreclosure to another. This happened at 24 Gayland St, Dorchester, a conversion in which Scott figured. After the first buyer lost unit 2 to foreclosure, Scott bought the unit and sold it again at a higher price less than two weeks later, in February of last year. The new buyer also has mortgage trouble. A foreclosure petition was filed against her last month.

There have also been repeat foreclosures among Cox and his associates. After he lost a property he originally bought on Claybourne St with Jacquelyn Pittman, Cox bought a property that Pittman lost to foreclosure on Reservation Road in Hyde Park. That purchase led to another foreclosure petition, against Cox.

Pittman also lost a property to foreclosure at 2 Rock Ave in Dorchester. It was purchased in January of last year by Larneshia Bryant. A foreclosure petition was filed against Bryant in March of this year.
















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