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SCOTUS: Surrendering collateral to fraudulently obtained loan is not a return of property entitling defendant to offset of restitution under MVRA

Robers v. United States, USSC No. 12-9012, 5/5/14, affirming United States v. Robers, 698 F.3d 937 (7th Cir. 2012); Scotusblog page (includes links to briefs and case commentary); On Point’s previous coverage.

Where a defendant is ordered to pay restitution under the Mandatory Victim Restitution Act (MVRA), the amount of restitution may be reduced by the value of “any part of the property that is returned” to the victim. The Supreme Court holds that a a defendant convicted of fraudulently obtaining a loan does not return part of the property to the defrauded lender when the lender takes title to the collateral securing the loan. Therefore, restitution is not reduced by the fair market value of the collateral at the time the lender took title.

Robers was convicted of wire fraud for his part in a fraudulent mortgage scheme. After the loans went into default, the lenders foreclosed and took title to the properties that served as collateral for the loans. But the lenders took possession in 2006, before the collapse of the housing market, and were not able to re-sell the homes till 2007 and 2008. Because of declining housing prices, the banks received less cash on the resales than the purported fair market value when they took title. (Slip op. at 2).

Relying on cases from other circuits, Robers claimed that when the lenders took title to the collateral in 2006, “part” of the “property” fraudulently obtained was “returned” to the lender, and therefore under 18 U.S.C. § 3663A(b)(1)(B)(ii), the restitution amount should be offset by the fair market value of the homes. The Seventh Circuit disagreed, following the cases from yet other circuits holding that the “property” lost by the lender is cash, and cash was returned only when the homes were resold, not when the lender took title. The Supreme Court unanimously agrees with the Seventh Circuit:

In our view, the statutory phrase “any part of the property” refers only to the specific property lost by a victim, which, in the case of fraudulently obtained loan, is the money lent. Therefore, no “part of the property” is “returned” to the victim unit the collateral is sold and the victim receives money from the sale. The import of our holding is that a sentencing court must reduce the restitution amount by the amount of money the victim received in selling the collateral, not the value of the collateral when the victim received it. (Slip op. at 1-2).

The Court’s reasoning rests on the emphatic repetition of the word “property” in § 3663A, which leads it to conclude that “if the ‘property’ that was ‘damage[d],’ ‘los[t],’ or ‘destr[oyed]’ was the money, then ‘the property … returned’ must also be the money.” (Slip op at 4). This reading also “facilitates the statute’s administration.” (Slip op. at 4). If the value that matters is the value of the money the bank receives from the sale of the collateral, it is easy to calculate the offset to the restitution order. But if what matters is the value of the non-monetary property when the bank takes title, then calculation of the offset is more difficult, and “may provoke argument, requiring time, expense, and expert testimony to resolve.” (Slip op. at 5).

Finally, the decrease in the value of the collateral due to declining prices doesn’t violate the rule that the defendant is liable only for damages proximately cause by his criminal conduct: “Fluctuations in property values are common. Their existence (though not direction or amount) is foreseeable. And losses in part incurred through a decline in the value of collateral sold are directly related to an offender’s having obtained collateralized property through fraud.” (Slip op. at 6). On this point, two concurring justices (Sotomayor and Ginsburg) say the holding here may not apply where the victim unreasonable delays in selling the collateral, as that may break the chain of proximate cause: “If a victim chooses to hold collateral rather than to reduce it to cash within a reasonable time”—e.g., because the defendant shows the victim chose to hold the collateral as an investment instead—“then the victim must bear the risk of any subsequent decline in the value of the collateral, because the defendant is not the proximate cause of that decline.” (Concur. at 1).

Note that the state restitution statute, § 973.20(2)(b)2., also provides for an offset based on “the value of any part of the property returned, as of the date of its return.” Thus, the Court’s interpretation of the very similar MVRA language will likely be used as persuasive authority for how to apply this offset in situations (should they ever arise under state law) involving the return of collateral for a fraudulently obtained loan.

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