51 F.3d 86 (7th Cir. 1995), 93-3233, United States v. Barrett

• Date: 23 March 1995
• Citation: 51 F.3d 86
• Docket Number: 93-3233.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Gene E. BARRETT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 86

51 F.3d 86 (7th Cir. 1995)

UNITED STATES of America, Plaintiff-Appellee,

v.

Gene E. BARRETT, Defendant-Appellant.

No. 93-3233.

United States Court of Appeals, Seventh Circuit

March 23, 1995

Argued Nov. 15, 1994.

Page 87

Daniel P. Bach, Asst. U.S. Atty., Madison, WI (argued), for plaintiff-appellee U.S.

Martin I. Hanson, Hanson, Gasiorkiewicz & Weber, Racine, WI (argued), for defendant-appellant Gene E. Barrett.

Before COFFEY, RIPPLE, and ROVNER, Circuit Judges.

ROVNER, Circuit Judge.

Gene Barrett pled guilty to two counts of making false statements to a federally insured lending institution in violation of 18 U.S.C. Sec. 1014. (R. 26). Barrett was sentenced to twenty-one months' imprisonment and a one-year term of supervised release. Additionally, the court ordered Barrett to pay restitution in the amount of $183,043.61 to Anchor Savings & Loan and $748,875.44 to Old Republic National Title Insurance Company, the successor to the Title Insurance Company of Minnesota. On appeal, Barrett argues that the court erred by increasing his offense level by 10 pursuant to U.S.S.G. Sec. 2F1.1 because (1) the loss of $748,875.44 incurred by Old Republic was not a loss by a "victim" under Sec. 2F1.1, and (2) the loss of $183,043.61 incurred by Anchor Savings was not a "loss" under Sec. 2F1.1.

Page 88

I.

In May of 1984, Barrett and John Bosshard entered into a partnership called "Seminole Associates" for the purpose of purchasing and developing real estate in Fitchburg, Wisconsin. Seminole Associates borrowed $2,500,000 from First Federal Savings and Loan Association ("First Federal") of LaCrosse, Wisconsin. The loan was secured by a blanket mortgage on all of the real estate owned by the partnership. The loan agreement provided that First Federal would execute partial releases of the mortgage upon payment of a fixed dollar amount for each lot that the partnership sold. This arrangement enabled the partnership to sell the lots to third parties unencumbered, so that these purchasers could in turn secure their own mortgages on the lots. Barrett employed Badger Abstract and Title Corporation of Madison, Wisconsin ("Badger") to obtain title commitments and title insurance. Badger was owned and underwritten by the Title Insurance Company of Minnesota ("Minnesota Title").

Ordinarily, a title insurance company will not issue a "clear" title commitment on land that is mortgaged without proof that the mortgage has been satisfied. Absent the appropriate documentation, the title commitment will acknowledge the existence of a prior and superior mortgage to which any new security interests will be subordinate. Badger followed this practice initially.

However, in early 1987, Barrett approached Frank Alvstad, the agent at Badger assigned to handle Seminole Associates work, and showed him five checks, each in the amount of $26,000, that purportedly were to be sent to First Federal to satisfy its mortgage on five lots. Barrett told Alvstad that he was in a hurry to begin construction on the lots and asked Alvstad to issue clear title commitments for them. Barrett told Alvstad that he would send the checks to First Federal himself and that First Federal would then send partial mortgage releases to Badger. Alvstad testified that based on his prior satisfactory dealings with Barrett and his belief in the financial soundness of Seminole Associates, he expected that Barrett would in fact send the checks and that the releases would be forthcoming. Alvstad did as Barrett requested and issued clear title commitments without actually receiving either the checks or the releases from First Federal. From that point on, this procedure became the norm; Barrett would display to Alvstad one or more checks payable to First Federal for the partial release of its mortgage and Alvstad would issue clear title commitments for the lots for which releases were sought. But, contrary to Alvstad's expectation, Barrett was not sending the checks to First Federal; and Badger would eventually discover that it had issued clear title commitments on thirty-two lots on which First Federal still held a first mortgage. ¹

In addition to his false representations to Badger, Barrett also made misrepresentations to Anchor Savings and Loan of Madison, Wisconsin ("Anchor") in connection with four construction loans obtained from Anchor. Barrett assured Anchor that the lots pledged as collateral were free of existing liens, when in fact First Federal (and, in one instance, First Financial Savings Association of Stevens Point, Wisconsin) continued to hold mortgages on the lots.

When Barrett's partner, John Bosshard, discovered that Barrett had been obtaining loans by mortgaging real estate that was already encumbered, Bosshard required Barrett to sign an agreement dissolving the partnership and signing over to Bosshard all of Barrett's interest in the properties owned by Seminole Associates. Barrett subsequently defaulted on the various loans.

In order to meet its title commitments upon Barrett's default, Minnesota Title, which had underwritten the policies issued by Badger, negotiated a mortgage assignment from First Federal in exchange for $423,000. The assignment caused the mortgage

Page 89

originally held by First Federal to become subordinate to any subsequent mortgages, as would have been the case had the property truly been unencumbered as the clear title commitments reflected. The subordinate mortgage now held by Minnesota Title was of no value. Minnesota Title similarly purchased a note and mortgage from Anchor for $233,467.36 in order to fulfill Badger's obligations to Anchor. This mortgage thus became subordinate to a mortgage held by First Financial Savings of Stevens Point and, like the assignment obtained from First Federal, worthless. Finally, Minnesota Title paid $83,408.08 for mortgages held by Community National Bank, in order to fulfill the insurance obligations undertaken by Badger in connection with title commitments it had issued based on Barrett's false representations.

In total, Minnesota Title paid $748,875.44 to either first or second mortgage holders in order to satisfy insurance obligations undertaken by Badger. As a consequence of these pay-outs by Minnesota Title, only Anchor Savings suffered losses due to Barrett's conduct. Although Anchor's mortgages on three of the four lots (they suffered no loss with respect to the fourth lot) were no longer subordinate to the First Federal mortgage once Minnesota Title paid off First Federal, due to a decrease in the market value of the lots Anchor lost $183,043.61 when it elected to sell the foreclosed property.

II.

Pursuant to the Victim and Witness Protection Act, the district court ordered Barrett to pay $748,875.44 in restitution to Old Republic, the successor to Minnesota Title, for the sums Minnesota Title had paid to reimburse the financial institutions, and another $183,043.61 to Anchor to cover its losses. See 18 U.S.C. Sec. 3663(e)(1) (authorizing the court to award restitution "to any person who has compensated the victim"); see also United States v. Marlatt, 24 F.3d 1005, 1007 (7th Cir.1994) (monies spent by title insurer to clear titles are included as "loss" under U.S.S.G. Sec. 2F1.1). ² The district court also increased Barrett's offense level by ten levels based on the magnitude of the loss in accordance with U.S.S.G. Sec. 2F1.1(b)(1).

A.

Barrett argues that the district court erred when it increased his offense level under Sec. 2F1.1 based on the amount of money Minnesota Title (and thus Old Republic) lost. Barrett...