Local Real Estate Developer Sentenced and Ordered to Pay Millions in Restitution

ST. LOUIS, MO—Robert Douglas Hartmann was sentenced to 24 months in prison on bank and mail fraud charges stemming from his multi-million dollar real estate business, Acting United States Attorney Michael W. Reap announced today.

In addition to his prison sentence, Hartmann was ordered to pay restitution in excess of $34 million to 114 victims of his scheme.

Hartmann was engaged in the purchasing, leasing, renovation, development and sales of real estate, and focused on existing properties that were in various stages of neglect or disrepair. He marketed the projects to associates and investors as redevelopment projects for sales, rental properties or as condominium development projects.

By the time his business collapsed in late 2005, Hartmann, 47, O'Fallon, MO, had been involved with hundreds of residential properties, many of them in south St. Louis City. He was charged with criminal offenses after investors, "hard money" lenders and banks were left with unfinished properties that were often dilapidated and, in many instances, went into foreclosure.

"Prosecution of real estate fraud is a priority of federal law enforcement," said Reap. "Real estate developers like Hartmann can expect to go to prison when they cross the line. His fraud caused serious harm to individual investors and banks, and one of his victims even lost her house. On top of that, a number of city neighborhoods have been left with boarded up homes and foreclosure signs. In many ways this activity destroys these city neighborhoods. Hartmann deserves this sentence."

Hartmann plead guilty in April to defrauding a woman of approximately $44,000 in equity in her home on the 1000 block of Jefferson Street in St. Charles by arranging a sale in early February 2005, in which he, as the buyer, ended up receiving a check in excess of $44,000. Although the woman was the actual seller, Hartmann set up the deal in such a way that she received only $1,882.

Judge Autrey asked the woman to stand up in court and then told Hartmann to turn and look at her. The Judge then sentenced Hartmann to the prison term.

While claiming to help the woman keep her house which had some $56,000 in loans against it, Hartmann saddled the house with a mortgage up to its full value of $100,000 and, under the agreement, the woman made increased monthly payments to Hartmann of $1,108 in a rent-to-own arrangement. Within months of the sale, Hartmann caused additional deeds of trust for hard money loans totaling $68,000 to be placed against the house on Jefferson. She had no knowledge of the $100,000 bank loan nor of the hard money loans which left the house with $168,000 in deeds of trust against it-well beyond the fair market value of the house.

Hartmann stopped making payments on the woman's house in November 2005, but she kept making monthly payments to him well into 2006. As a result of Hartmann's failure to make the mortgage payments, the bank later foreclosed on the house and she was forced to leave, having lost her house and all the equity in it. Hartmann kept the $44,000 and the hard money loans for use in his business.

Hartmann was also sentenced after admitting to a scheme in which he provided false vouchers and invoices to banks in order to draw down funds from construction loans that were made for the renovation or "rehab" of specific properties. The construction loan funds were diverted by Hartmann to other projects and many of the rehabs never reached completion. Hartmann admitted that, by 2004, his business rarely generated true profits through property sales and that he needed constant sources of fresh funds from new investors and banks in order to pay off banks and investors as obligations came due.

In one bank fraud charge, Hartmann had admitted that he failed to renovate a residence at 2715 Michigan in St. Louis after construction loans had been made by both Frontenac Bank as well as the Business Bank. Court documents show that construction loans in the amounts of $88,000 and $50,000, respectively, were made on that property. As part of his scheme, Hartmann admitted that a check for $3,500 in construction loan funds advanced for flooring on the Michigan property was, in fact, signed over by him to one of the hard money lenders.

The U.S. Attorney's Mortgage Fraud Task Force consists of over 70 residents of the Eastern District of Missouri involved in banking, mortgage brokerage, real estate sales, title insurance, real estate appraising as well as federal, state, and local law enforcement, regulatory officials and non-government organizations. Anyone wishing to report suspected mortgage fraud or participate in the work of the task force is encouraged to call the Mortgage Fraud hotline at 1-866-587-9571.

Reap commended the work on the case by the U.S. Postal Inspection Service, HUD- Office of Inspector General, the Federal Bureau of Investigation; and Assistant United States Attorneys James E. Crowe, Jr., Reginald Harris and Howard Marcus, who handled the case for the U.S. Attorney's Office.