In Mortgage Fraud Case, Offset Value Based on Cash Recouped in
By Joe Forward, Legal Writer,
State Bar of Wisconsin
17, 2012 – Federal appeals courts have split on whether
restitution for mortgage fraud victims should be based on the fair
market value of the real estate collateral in the hands of a victim, or
the amount recouped when the victim sells the real estate in
States v. Robers, No. 10-3794 (Sept. 15, 2012) the U.S. Court
of Appeals for the Seventh Circuit sided with other circuits concluding
that offset values under the Mandatory Victims Restitution Act (MVRA)
are based on the amount recouped upon sale of the real estate.
A court ordered defendant Benjamin Robers and others to pay $218,952 in
restitution to a mortgage lender and a mortgage insurer after defrauding
the companies to obtain loans. Robers defaulted, and the real estate was
later resold at foreclosure prices.
Under the MVRA, courts must order defendants to pay restitution by
returning property or paying the greater of the property’s value
on the date of loss or the date of sentencing, less the “offset
value.” The offset value is the value of any property returned as
of the date of return.
Robers argued that the offset value should be based on the fair market
value of the subject real estate on the date the victims obtained title
to it. The government argued that offset values under the MVRA are
determined on eventual cash proceeds.
At least three circuits determine offset value based on Robers view.
But a three-judge panel for the Seventh Circuit Appeals Court adopted
the view of three other circuits that don’t.
“Today we join the view of the Third, Eighth, and Tenth Circuits
– that the offset value is the eventual cash proceeds recouped
following a foreclosure sale,” wrote Judge Daniel Manion.
The panel reasoned that the property stolen was cash, not real
“Accordingly, the property stolen is only returned upon the
resale of the collateral real estate and it is at that point that the
offset value should be determined by the part of the cash recouped at
the foreclosure sale,” Judge Manion explained.
Fraud not Crash Caused Loss
Robers and others carried out a scheme to submit fraudulent mortgage
loan applications in Walworth County, inflating income, assets, and
falsely claiming the intent to use the homes as a primary residence.
Eventually, Robers pleaded guilty to conspiracy to commit wire fraud.
For his role in the conspiracy, Robers received $500 per fraudulent loan
He appealed when the court ordered all co-conspirators to pay
restitution of $218,952 with joint and several liability. Unfortunately
for the co-conspirators, the real estate crash devalued the real estate
properties at issue, increasing the amount of restitution to be paid
upon sale. For example, one home had a mortgage note of $330,000 but
sold at a loss of $166,000.
The panel rejected Robers’ argument that a poor real estate
market caused the loss, not his fraud. “Absent his fraudulent loan
applications, the victim lenders would not have loaned the money in the
first place,” Judge Manion wrote. “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 circuit split sets up a potential case for the U.S. Supreme Court
to decide whether the MVRA requires a court to determine restitution
based on the fair market value of collateral real estate on the date it
is returned to a victim of mortgage fraud, or the cash value upon
foreclosure sale. For now, the Seventh Circuit Appeals Court requires