U.S. v. Gaudin

• Decision Date: 22 June 1993
• Docket Number: No. 90-30334,90-30334
• Citation: 997 F.2d 1267
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Michael E. GAUDIN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1267

997 F.2d 1267

UNITED STATES of America, Plaintiff-Appellee, v. Michael E. GAUDIN, Defendant-Appellant.

No. 90-30334.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Oct. 7, 1991.

Submission Withdrawn Oct. 25, 1991.

Resubmitted June 19, 1992.

Opinion Filed Feb. 18, 1993.

Opinion Withdrawn June 22, 1993.

Decided June 22, 1993.

Opinion, 986 F.2d 1267, superseded.

Richard Hansen, Allen & Hansen, Seattle, WA, for defendant-appellant.

Kris A. McLean, Asst. U.S. Atty., Helena, MT, for plaintiff-appellee.

Appeal from the United States District Court for the District of Montana.

Before: WALLACE, Chief Judge, HUG, and RYMER, Circuit Judges.

ORDER

The opinion filed February 18, 1993, 986 F.2d 1267, is withdrawn.

HUG, Circuit Judge:

This case involves an alleged scheme in which Gaudin purchased houses, then entered into sham sales transactions at inflated appraised prices, obtained loans on the basis of the inflated prices, reacquired the property, rented it, failed to make the mortgage payments, and applied the rents to his own use. He was convicted of equity skimming, a violation of 12 U.S.C. § 1709-2, for his failure to pay the HUD/FHA insured mortgages while retaining the rents on the secured properties and applying them to his own use. He was also convicted of 43 counts of violations of 18 U.S.C. § 1001 for false statements made on the loan documents submitted.

The issue on the equity skimming charge is whether sufficient evidence was adduced to sustain the conviction. The principal issue on the false statement counts is whether the district court erred in instructing the jury that one of the elements of the crime, the materiality of the statements, was established as a matter of law. Because we reverse these 43 counts on this issue, we need not address the other claimed evidentiary and instructional errors involving those counts. We find sufficient evidence to sustain the equity skimming charge and affirm the conviction on that count.

I. Facts

Michael Gaudin, a real estate broker and developer, and two real estate appraisers were charged in a multi-count indictment on October 19, 1989, based on a series of real estate transactions involving loans insured by the United States Department of Housing and Urban Development ("HUD") through the Federal Housing Administration ("FHA"). Count 1 charged Gaudin with equity skimming in violation of 12 U.S.C. § 1709-2. Counts 2-42 charged him with making or causing to be made false entries on HUD settlement statements in violation of 18 U.S.C. § 1001. Counts 43-46 charged Gaudin and the appraisers with making false statements on HUD appraisal forms. The appraisers were tried separately. Count 18 was dismissed, and Gaudin was convicted by a jury on all remaining counts. Count 43 was dismissed at sentencing for insufficient evidence. Gaudin's motion for a new trial was denied; he was sentenced to 36 months in prison on Court 1, and 10 months in prison on each of the other counts, all sentences to run concurrently.

The charges arose from a series of transactions from December 31, 1985 through December 1, 1988. Gaudin purchased 29 single family homes with loans secured by deeds of trust and mortgages insured through FHA. Within one year of the dates of purchase, the loans went into default.

Gaudin did business as Hallmark Properties, Montana Regency, Inc., and North West Housing, Inc. He renovated and resold rental housing. He presented borrowers with complete loan packages to United Western Mortgage Company, which participated in FHA's direct endorsement program. The loan packages contained purchase and sale agreements, appraisal reports, promissory notes, trust indentures, settlement statements, and letters from each borrower certifying that no portion of any equity payment would be refunded. Sixty-two such transactions occurred.

Gaudin, or one of his companies, was the original owner of the real estate involved in each transaction. The Government's case was based on evidence that Gaudin was in effect selling property to himself at an artificially inflated price based on inflated appraisals. These sales and appraisals were then used to obtain loans that exceeded the real value of the property. Gaudin solicited friends and relatives to act as buyers, to whom he paid $1,000 each to buy a house from him or from one of his companies. In most of the transactions, the buyers made the necessary down payments by making an equity transfer of a fractional interest in the buyer's own home, by deeding the interest to Gaudin, who promptly deeded it back to the buyer. Several buyers made cash down payments but were assured that the cash would be returned immediately. Gaudin paid all costs of loan origination and closing. The mortgage company funded the loans based upon the representations made on the settlement sheets, which were forwarded to FHA/HUD, who insured the loans.

No loan payments were made by the buyers. The equity payments were refunded, and Gaudin assumed the loans, took title in a name other than the name under which he originally owned the property, rented the houses, collected rent, and subsequently defaulted on 29 loans insured by HUD/FHA. The total gross sale price of the properties sold by Gaudin and then assumed back was $2,003,700. Gaudin netted $982,003, according to the Government, and retained title to the properties.

At trial, Gaudin claimed that the $1,000 payments were for the right to repurchase the properties and to assume the FHA loans. Not all of the loans made were assumed by Gaudin. When the mortgage company discovered in April 1987, that Gaudin had assumed many of the loans, it terminated all of Gaudin's financing. Gaudin then defaulted on the loans. Although he continued to collect between $6000 and $8000 per month in rent from 29 of the properties until December 31, 1988, he made no payments on the loans.

The false statements charges in Counts 2-42 were based upon the representations made on line 303 of the HUD-1 settlement statements prepared in each transaction. Line 303 shows the amount of cash paid "to" or "from" the borrower to close the loan. The Government contended that the amount represented as being paid "from" the borrower affected the mortgage company's determination of the amount of the loan, and the decision of HUD/FHA to insure the loan. It concealed the true nature of the transaction and Gaudin's part in it.

Counts 44-46 were based upon evidence that Gaudin and an appraiser made false statements on HUD Forms 92800, Appraisal Report Forms, by overstating the fair market value of properties, in violation of 18 U.S.C. § 1001.

II. Equity Skimming

The only error alleged in connection with the equity skimming count was that there was insufficient evidence to support the verdict of the jury. ¹ The crime charged is a violation of 12 U.S.C. § 1709-2 (1988). That statute provides in pertinent part as follows:

Whoever, with intent to defraud, willfully engages in a pattern or practice of--

(1) purchasing one- to four-family dwellings ... which are subject to a loan in default at time of purchase or in default within one year subsequent to the purchase and the loan is secured by a mortgage or deed of trust insured or held by the Secretary of Housing and Urban Development or guaranteed by the Department of Veterans' Affairs, or the loan is made by the Department of Veterans' Affairs,

(2) failing to make payments under the mortgage or deed of trust as the payments become due, regardless of whether the purchaser is obligated on the loan, and

(3) applying or authorizing the application of rents from such dwellings for his own use,

shall be fined not more than $250,000 or imprisoned not more than 5 years, or both.

There is evidence that shows that Gaudin collected between $6,000 and $8,000 per month in rent from April 1987 until December 1988. Although there is evidence he continued to make payments on some of his mortgages, it is undisputed he made no payments after April 1987 on the 29 mortgages here in issue. The Government presented evidence that the rent proceeds from those 29 properties were used to pay for repairs and improvements, taxes, and mortgage payments on other loans. Some "surplus funds" were also identified.

Gaudin claims that the Government failed to prove that he applied the rent receipts to his own use. He asserts that his financial records show that none of the money was spent on anything other than expenses directly related to the mortgage property. He argues that because his records show that he used all the rents for upkeep and to make mortgage payments until his financing was terminated in April 1987, he is not guilty of equity skimming. Applying the rent proceeds to payments on other mortgages, to taxes, and to capital improvements on these and other houses, while making no mortgage payments from April 1987 to December 1988, is strong evidence of equity skimming. This evidence, viewed in the light most favorable to the Government, is sufficient to uphold the conviction.

III. False Statements

We next turn to the charges involving the false statements, in violation of 18 U.S.C. § 1001 (1988). 18 U.S.C. § 1001 provides:

Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than five years, or both.

An element of the false statements statute, 18 U.S.C. § 1001, is materiality. United States v. Oren, 893 F.2d 1057, 1063 (9th Cir.1990); United States v. Facchini, 874 F.2d 638, 641 (9th Cir.1989) (en banc ). Materiality is defined as the "propensity to influence agency...