Bank Employee Arrested for Short Sale Scheme

A former Bank of America employee in California has been indicted on federal bribery charges related to manipulating home sale prices.

Kevin Lauricella worked on delinquent mortgages for Bank of America until he was fired in 2011. He is accused of accepting more than $1 million in bribes for selling 18 properties in 2010 and 2011 at prices lower than what the bank would have approved, according to a report in the Los Angeles Times. Borrowers who default on their mortgages can satisfy their debts by selling their homes for less than they owe, which is called a short sale.

In a short sale, the lender writes off the difference between what the former homeowners owe and how much the home sold for. Because of the alleged scheme, Bank of America would have taken greater losses than it should have.

Ariel Neuman, an assistant U.S. attorney in L.A., told the L.A. Times how the operation supposedly functioned:

“The buyers would either resell the homes at the actual property values or in some cases would refinance the property at the actual value, thereby extracting profits on the deals,” Neuman said. Lauricella pleaded not guilty to the charges, in which he is accused of facilitating the sales by improperly approving short sales and falsifying bank records.

Lauricella’s arrest resulted from an FBI investigation, and the Times cited court records that said three other defendants had entered plea agreements about rigging short sales in Southern California. According to the Times, “A Bank of America spokesman said Lauricella had been fired in 2011 and that the bank cooperated with the FBI investigation of the case.”

Like a foreclosure, a short sale translates into a massive blow to the former homeowner’s credit history. Consumers may also bear the financial burden of short sale incentives, which are taxable, as is cancellation of debt income. These aren’t always outcomes of short sales, however.

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