The co-founders of a North Andover mortgage business were charged in Boston federal court on Nov. 8 in connection with a scheme to defraud mortgage lenders and investors out of nearly $500,000.

Gabriel T. Tavarez, 39, and Jaime L. Mulvihill, 40, were charged with conspiracy to commit wire fraud. Tavarez also was charged with aggravated identity theft. The charges allege that Tavarez and Mulvihill stole undisclosed and improper fees from mortgage lenders in connection with short sales of homes, according to a statement from the U.S. Attorney’s office.

Tavarez and Mulvihill founded and operated Loss Mitigation Services LLC, a company offering assistance with mortgage short sales. In about 90 short sale transactions, they allegedly defrauded the Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development, according to the statement..

A short sale occurs when mortgage debt on a home is greater than the sale price, leading the mortgage lender to agree to take a loss on the transaction. Loss Mitigation Services would negotiate with mortgage lenders to approve short sales rather than foreclose on a home. Mortgage lenders typically forbid short sale negotiators like Loss Mitigation Services from receiving any proceeds of the short sale.

As part of the scheme, which lasted from 2014 to 2017, Tavarez and Mulvihill would falsely claim 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. Tavarez and Mulvihill made the claims directly or through their employees, but the mortgage lenders had never approved Loss Mitigation Services to receive those fees, according to the U.S. Attorney’s office.

When the short sales closed, allegedly at the instruction of Tavarez or 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.

To deceive mortgage lenders about the true nature of the fees, Tavarez or Mulvihill allegedly 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. Tavarez and Mulvihill fabricated the transaction documents, or caused them to be fabricated, in order to justify the additional fees and conceal that they were being paid to Loss Mitigation Services, according to the U.S attorney’s statement. In addition, Tavarez allegedly created 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.

The charge of conspiracy to commit wire fraud provides for a sentence of up to 20 years in prison, three years of supervised release, and a fine of $250,000 or twice the gross gain or loss. The charge of aggravated identity theft carries a mandatory two-year sentence that must run consecutively to any other sentence imposed, one year of supervised release, and a fine of $250,000, or twice the gross gain or loss.