Fraud and Prevention

Florida Man Sentenced to Four Years for Alabama Mortgage Fraud

By James Comtois
October 14, 2009

A real estate developer from St. Augustine, Fla., has been sentenced to more than four years in prison for conducting a home purchasing fraud scheme in Alabama, Florida and Tennessee, according to the U.S. attorney's office for the Middle District of Alabama.

U.S. District Judge Myron H. Thompson sentenced Robert B. Guest Jr. to 50 months in federal prison. Guest pleaded guilty in June 2008 to conspiracy to make false statements to financial institutions. According to his plea agreement, beginning in the fall of 2002, Guest began engaging in the business of buying and selling houses.

Guest would purchase a house in an area of low property values, at first in Birmingham, Ala., and, beginning in 2005, in Montgomery, Ala. He also bought and sold houses in Orange and Seminole Counties, Fla., and Nashville, Tenn.

In the scheme, prior to buying the houses, Guest arranged to resell the houses to investors. Guest's written contract with the investors would provide that Guest would sell the property to the investors for a price substantially in excess of the price Guest had paid for it. The properties were to be rented to Section 8 tenants and the rent payments were supposed to provide the investors with enough funds to cover the amount of the mortgage, plus a profit.

The investors financed the purchase through a mortgage loan from either a bank or a nonbank mortgage lender. The investors would apply for an "80/20" mortgage loan, which meant that the investors was supposed to be paying 20% of the purchase price, with the lender financing 80%. The investors and Guest had an unwritten side deal whereby Guest would immediately refund the amount of the down payment to the investors, typically within 24 hours.

Therefore, the investors were buying the house for the amount of the loan and the lender was providing 100% financing instead of 80%. Both the loan application submitted by the investors and the closing statement signed by Guest and the investors represented that the investors was putting 20% down without disclosing the side deal.

Guest sold more than 200 houses pursuant to this scheme, approximately 100 of which were in Montgomery. The lenders for most of the Montgomery houses were Countrywide Bank and its affiliate, Countrywide Home Loans. Countrywide is expected to suffer a loss of more than $5 million as a result of these loans.

A spokesperson from the U.S. attorney's office said that the investors' names have not yet been disclosed, as the investigation is ongoing.