Texas Psychologist Rafael Otero Sentenced to Prison and $3.6M Restitution for HUD Loan Fraud

August 19, 2021

A Texarkana psychologist and former owner of the Magnolia Alzheimer’s Assisted Living facility in Texarkana, Texas, pleaded guilty earlier this year to a misdemeanor fraud charge in the Texarkana Division of the Eastern District of Texas.

Rafael Otero, 68, appeared for sentencing this week before U.S. Magistrate Judge Caroline Craven. Craven sentenced Otero to one year in federal prison and ordered that he self surrender in January 2022 to begin serving the term.

The fraud involved a 2009 HUD loan for $4,860,000 which entered default status after payments were not made. Rafael Otero’s son, Antonio Otero, was administrator of the facility and sentenced in 2020 to 46 months in federal prison following a guilty plea. He was ordered to pay $2 million in restitution.

“Dr. Otero, and his son Antonio Otero, exploited a HUD-insured mortgage program designed to provide affordable housing for those suffering from diseases like Alzheimer’s,” said Acting U.S. Attorney Nicholas Ganjei. “While they left the HUD-insured mortgage unpaid, the Oteros took hundreds of thousands of dollars. Because of their actions, the American taxpayers ultimately suffered a loss of over $3.6 million.”

According to information presented in court, Dr. Otero was the majority owner of the Magnolia facility and Antonio Otero was the facility’s administrator. In order to secure millions of dollars in necessary funding, the Oteros obtained a loan that was insured by HUD. The HUD-insured loan provided a favorable interest rate and did not require the owners of Magnolia to take personal responsibility for the loan in the event of a default. Instead, HUD would suffer the financial loss in the event that Magnolia defaulted on the loan. As a condition of this federal benefit, Magnolia agreed to be bound by a regulatory agreement with HUD that prohibited the owners from receiving money from Magnolia, unless the loan was being paid and Magnolia had surplus cash.

But instead of paying the HUD-insured loan, and in violation of the regulatory agreement they signed with HUD, the Oteros took hundreds of thousands of dollars from Magnolia. Dr. Otero received more than $150,000 from Magnolia in unauthorized compensation and other payments. Antonio Otero took even more money from Magnolia, using it to pay for $3,952 of camera equipment, a $3,247 watch, $2,520 in landscaping for his personal residence, a $27,408 personal mortgage payment, a $12,750 down payment on a personal vehicle, and $1,540 tickets to the Dallas Cowboys. Additionally, he took money from Magnolia and gave it to other individuals, including $13,000 for cosmetic surgery. When Dr. Otero learned that his son had been stealing money from Magnolia, Dr. Otero did not report him to authorities or remove him from his position. After Dr. Otero learned of his son’s theft, Antonio Otero stole an additional $62,000 from Magnolia.

Rafael Otero is ordered to pay $3,654,677.37 joint and several with his son. He must also pay a $25 special assessment.

Otero is represented by Texarkana attorney Jeff Harrelson. Assistant U.S. Attorney Jonathan Hornok is representing the government.

Source: Field Walsh, “Texarkana psychiatrist sentenced to year in federal prison for misuse of Housing and Urban Development Funds,” TXK Today, August 16, 2021, URL: https://txktoday.com/courts/texarkana-psychiatrist-sentenced-to-year-in-federal-prison-for-misuse-of-housing-and-urban-development-funds/ and “Father and Son Guilty of Defrauding Department of Housing and Urban Development Through Texarkana Alzheimer’s Assisted Living Facility,” news release of U.S. Dept. of Justice, U.S. Attorney’s Office, Eastern District of Texas, Feb. 10, 2021, URL: https://www.justice.gov/usao-edtx/pr/father-and-son-guilty-defrauding-department-housing-and-urban-development-through