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The principal and co-founder of a North Andover-based mortgage short sale assistance company was sentenced this week in connection with a scheme to defraud mortgage lenders and investors out of nearly $500,000 in proceeds from about 90 short sale transactions.

Gabriel T. Tavarez, 40, of Westminster, was sentenced in Boston federal court to seven months in prison and two years of supervised release, according to a statement from the U.S. attorney’s office. Tavarez was also ordered to pay restitution of $475,458. Tavarez had pleaded guilty in June 2020 to conspiracy to commit wire fraud and aggravated identity theft.

Tavarez founded and co-operated Loss Mitigation Services LLC, a short sale assistance company, with co-conspirator Jaime L. Mulvihill.

A short sale occurs where the mortgage debt on the home is greater than the sale price, considered “underwater,” and the mortgage lender agrees to take a loss on the transaction.

Loss Mitigation Services, purportedly acting on behalf of homeowners with underwater mortgage loans, negotiated with mortgage lenders for approval of short sales in lieu of foreclosure, the U.S. attorney’s statement said. Mortgage lenders typically forbid short sale negotiators, such as Loss Mitigation Services, from receiving any proceeds of a short sale.

As part of the scheme, which lasted from 2014 to 2017, Tavarez and Mulvihill, directly or through their employees, falsely claimed to homeowners, real estate agents and closing attorneys that mortgage lenders had agreed to pay Loss Mitigation Services fees known as “seller paid closing costs” or “seller concessions” from the proceeds of the short sales, according to the statement.

The mortgage lenders had never approved Loss Mitigation Services to receive such fees, the statement said. When the short sales closed, at the instruction of Tavarez, Mulvihill, or others working with them, settlement agents paid Loss Mitigation Services the fees, which typically were 3 percent of the short sale price above and beyond any fees to real estate agents, closing attorneys and others involved in the transaction, according to the statement.

To deceive mortgage lenders about the true nature of the fees, Tavarez or Mulvihill filed, or caused others to file, false short sale transaction documents with mortgage lenders, including altered settlement statements and fabricated contracts and mortgage loan preapproval letters, the statement said.

Tavarez also created, or directed others to create, fake letters from mortgage brokers claiming that the brokers had approved buyers for financing in order to convince mortgage lenders to approve the additional fees.

Mulvihill had previously pleaded guilty to the conspiracy and was sentenced in February 2020 to six months in prison.