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Justices try to calculate mortgage fraud restitution

Justices try to calculate mortgage fraud restitution

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The justices of the U.S. Supreme Court are trying to figure out just how much restitution is owed to a victim of bank fraud under the Mandatory Victims Restitution Act.

They heard oral arguments Tuesday in Robers v. U.S., No. 12-9012, which involves Benjamin Robers, who was convicted of engaging in a “straw man” mortgage fraud scheme.

Robers secured subprime loans based on phony information, then allowed the loans to default. The banks ultimately foreclosed on the houses and then resold them.

Robers was sentenced to three years’ probation and ordered to pay restitution. The court calculated the restitution amount as the difference between the loan amount Robers secured for each house and the resale price of the foreclosed properties.

Robers appealed the restitution order, arguing that the calculation was improper. The value of the property, he argued, should be the fair market value at the time of foreclosure, not the amount at resale.

The 7th U.S. Circuit Court of Appeals affirmed in relevant part, rejecting Robers’ argument that the lower court’s calculation in effect made him an insurer of real estate values, subjecting him to a higher restitution award in the event that property values declined between the time of the foreclosure and the time of resale.

“Absent his fraudulent loan applications, the victim lenders would not have loaned the money in the first place,” the 7th Circuit reasoned. “Likewise the mortgage notes would not have been extended, not paid, and then defaulted upon. And the banks would not have had to foreclose on and then resell the real estate in a declining market at a greatly reduced value.”

The Supreme Court granted certiorari to resolve a circuit split over how to calculate restitution under the MVRA. While the 3rd, 8th, and 10th Circuits follow the same approach as the 7th Circuit, the 2nd, 5th and 9th Circuits use the fair market value at the time of foreclosure.

The issue is also significant because some state fraud restitution statutes, including the law in Wisconsin, have nearly the exact wording as the MVRA, and so the justices’ ruling could impact state court interpretations as well.

Making the victim whole

At oral arguments, Jeffrey Green, a partner in the Washington office of Sidley Austin LLP, argued on Robers’ behalf.

“The whole idea is to make the victim whole,” he said. “The restitution order [should] be for the difference between the amount of the loan and the value of the property on the date the property was returned” to the bank.

“What would happen if it turned out that the property was worth more on the date of sentencing than it was on the date of foreclosure?” asked Justice Ruth Bader Ginsburg.

“Two things might happen,” Green replied. “The lender could take full title and do with the property what they will. [Or] if it turns out to be worth a whole lot more, the defense counsel might be able to come in” and point that out to the sentencing judge.

“But that may not make the seller whole,” Justice Sonia Sotomayor said. “What makes the seller whole is [based on the value] on the day he or she sold the house.”

Sarah E. Harrington, assistant to the U.S. solicitor general, argued that fair market value of a house is not comparable than the monetary amount of a loan.

“What the victims lost in this case was money,” she said. “What they got back was houses, which is not the same.”

Justice Stephen G. Breyer asked how the calculation might be made in a more complicated case.

What if the resale was an “unreasonable, fraudulent or hooked-up sale?” Breyer asked. “Or what happens if [the victim] won’t sell the house?”

Harrington said that the statute takes that into account, allowing for the house to be considered “the replacement of property [and] not the return of the property which was lost.”

“It’s easy when they sell the house because they’ve gotten their money back,” Harrington said.

A decision is expected later this term.


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