United States v. Robers

• Decision Date: 28 November 2012
• Docket Number: No. 10–3794.,10–3794.
• Citation: 698 F.3d 937
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Benjamin ROBERS, Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

698 F.3d 937

UNITED STATES of America, Plaintiff–Appellee,

v.Benjamin ROBERS, Defendant–Appellant.

No. 10–3794.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 15, 2011.

Decided Sept. 14, 2012.

Rehearing and Suggestion for Rehearing En Banc Denied Nov. 28, 2012.^*

Carol L. Kraft (argued), Attorney, Office of the United States Attorney, Milwaukee, WI, for Plaintiff–Appellee.

Christopher D. Donovan (argued), Attorney, Pruhs & Donovan, S.C., Milwaukee, WI, for Defendant–Appellant.

Before FLAUM, MANION, and SYKES, Circuit Judges.

MANION, Circuit Judge.

Benjamin Robers pleaded guilty to conspiracy to commit wire fraud in violation of 18 U.S.C. § 371, based on his role as a straw buyer in a mortgage fraud scheme; Robers signed mortgage documents seeking loans which were based on false and inflated income and assets and based on his claim that he would reside in the houses as his primary residence and pay the mortgages. The loans went into default and the real estate which served as collateral for the loans were later foreclosed upon and resold.

For his role in the scheme, the district court sentenced Robers to three years' probation and ordered him to pay $218,952 in restitution to the victims—a mortgage lender of one property and the mortgage insurance company which had paid a claim on the other defaulted mortgage. Clearly, both mortgage holders experienced significant losses. Robers appeals, challenging only the restitution order.

The Mandatory Victims Restitution Act of 1996, 18 U.S.C. § 3663A “(MVRA”), governs federal criminal restitution. It provides, in the case of a crime “resulting in damage to or loss or destruction of property of a victim,” that restitution is mandatory and that a court shall order a defendant to:

(A) return the property to the owner of the property or someone designated by the owner; or

(B) if return of the property under subparagraph (A) is impossible, impractical, or inadequate, pay an amount equal to the greater of—

(I) the value of the property on the date of the damage, loss, or destruction, or

(II) the value of the property on the date of sentencing,

less the value (as of the date the property is returned) of any part of the property that is returned.¹

18 U.S.C. § 3663A(b)(1).

The dispute in this case concerns the calculation of the “offset value.” Robers argues that the MVRA requires the court to determine the offset value based on the fair market value the real estate collateral had on the date the victim lenders obtained title to the houses following foreclosure because that is the “date the property is returned.” The government counters that money was the property stolen in the mortgage fraud scheme and that foreclosure of the collateral real estate is not a return of the property stolen; rather, only when the collateral real estate is resold do the victims receive money (proceeds from the sale) which was the type of property stolen. Accordingly, the government argues that the offset value must be determined based on the eventual cash proceeds recouped following the sale of the collateral real estate.

This court in two non-precedential decisions has followed the government's approach. See infra at 944–45. The other circuits are split on the issue. The Second, Fifth and Ninth Circuits have held that in a mortgage fraud case, the offset value should be based on the fair market value of the real estate collateral at the time the victims obtain title to the houses. See infra at 945–46. Conversely, the Third, Eighth, and Tenth Circuits (and a dissent from the Ninth Circuit) have concluded that it is proper to determine the offset value based on the eventual amount recouped by the victim following sale of the collateral real estate. See infra at 945–46.

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. We reach this decision based on the plain language of the MVRA. The MVRA states that the offset value is “the value (as of the date the property is returned) of any part of the property that is returned.” 18 U.S.C. § 3663A(b)(1). “The property” for purposes of offset value must mean “the property stolen.” The property originally stolen was cash. Some amount of cash is the only way part of the property can be returned. In the mortgage fraud case we have before us, the property stolen is cash—not the real estate which serves as collateral. 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.

We also agree with the government that the victims are entitled to expenses (other than attorney's fees and unspecified fees) related to the foreclosure and sale of the collateral property because those expenses were caused by Robers's fraud and reduced the amount of the property (cash) returned to the victim lenders. Because the district court included attorney's fees and unspecified fees in the restitution award, we vacate that portion of the district court's award, but otherwise affirm, and remand for proceedings consistent with this opinion.

I. Background

Benjamin Robers was a straw buyer in a mortgage fraud scheme devised by James Lytle and carried out by Lytle and others. The scheme involved the submission of fraudulent loan applications which materially misrepresented the straw buyers' income, qualifications, and intent to live in the houses and repay the mortgages. The misrepresentations caused loan funds to be wired by lenders to settlement companies which closed the loans. The loans went into default and the banks later foreclosed on and then sold the houses which served as collateral for the loans.

The scheme involved more than fifteen houses in a small geographical area in Walworth County, Wisconsin. Robers served as a straw purchaser for only two houses—one on Grant Street in Lake Geneva and the other on Inlet Shores in Delavan. In the loan applications, which he signed, Robers falsely stated that he would use the houses as his primary residence and that he would pay the notes secured by the mortgages on the houses; he also provided false and inflated information concerning his income and assets. For his role in the scheme, Robers received a mere pittance—about $500 for each loan. Both loans went unpaid and the houses eventually went into foreclosure. After the government learned of the fraud, Robers waived indictment and pleaded guilty to an information charging him with one count of conspiracy to commit wire fraud.

After Robers pleaded guilty, the United States Probation Office prepared a Presentence Investigation Report (“PSR”). Of relevance to this appeal, the PSR recommended that Robers should be required to pay $218,952.18 in restitution, pursuant to the Mandatory Victims Restitution Act of 1996, 18 U.S.C. § 3663A “(MVRA”). Robers objected to the $218,952.18 figure, arguing that his minor role in the offense and his limited economic circumstances should result in a total restitution obligation of $4,800. Robers also claimed that the proposed restitution award improperly held him responsible for the decline in real estate values and consequential and incidental expenses.

At sentencing, the government argued that neither Robers's limited role in the offense nor his limited resources justified a lower restitution amount, jointly and severally owed by all of the participants in the scheme. The government then presented testimony from two witnesses to establish the amount of restitution. First, Jim Farmer, a representative of Mortgage Guaranty Insurance Corporation (“MGIC”), testified that MGIC had insured the Grant Street mortgage (which was owned by Fannie Mae) and that Fannie Mae had submitted a claim for $159,214.91, which included unpaid principal, accrued interest, attorney's fees, property taxes, and other related expenses. Farmer explained that MGIC had the option of paying a percentage of the claim or paying the full amount of the loss and acquiring the real estate and then liquidating it. MGIC chose to do the latter and was able to reduce the amount of its loss to $52,952.18, which was lower than the amount it would have had to pay had it paid a percentage of Fannie Mae's claim. In mitigating its loss, though, MGIC incurred additional expenses, such as hazard insurance, yard maintenance, and the realtor's commission.

FBI Special Agent Michael Sheen also testified at the sentencing hearing. After detailing how the scheme operated, he explained that the Inlet Shores house had a mortgage note of $330,000 owned by American Portfolio and that the foreclosed real estate eventually sold for $164,000, resulting in a $166,000 loss. There were additional expenses related to the foreclosure sale, but American Portfolio had not responded to the government's request for additional information. Accordingly, the amount of restitution requested for the Inlet Shores mortgage was limited to $166,000.

The district court sentenced Robers to three years' probation—a below-Guideline sentence. Based on the testimony at the sentencing hearing, the district court ordered restitution of $166,000 to American Portfolio and $52,952.18 to MGIC, for a total restitution award of $218,952.18. Robers's co-conspirators who were involved with the procurement of the Grant Street and Inlet Shores mortgages were also ordered to pay restitution in the same amounts and the restitution awards were all entered with joint and several liability. ² Robers appeals, challenging only the restitution award.

II. Analysis

On appeal, Robers argues that the district court erred in calculating the amount of restitution based on the eventual resale value of the foreclosed real estate. Robers maintains that the district court should have based the restitution award instead on the fair market value of the real estate at the date of...