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Banking & Finance Law Report

U.S. Supreme Court Says Restitution Depends on Property a Lender Loses, not Collateral the Lender Receives

Posted in Bank Lending, Collection and Foreclosure, Workouts

In the unanimous ruling Monday, the U.S. Supreme Court resolved a split in circuits regarding the interpretation of the Mandatory Victim’s Restitution Act (MVRA). In Robers v. United States, the high court confirmed that for purposes of calculating restitution, the return to the lender of collateral securing a fraudulent loan is not completed until the victim lender receives money from the sale of the collateral.

In 2010, Robers was convicted in federal court of conspiracy to commit wire fraud relating to two houses that Robers purchased by submitting fraudulent loan applications. When Robers failed to make loan payments, the banks foreclosed on the mortgages and, in 2006, took title to the two houses. The houses were sold in 2007 and 2008 in a falling real estate market. At sentencing, Robers was ordered to pay restitution of approximately $220,000, equal to the loan amount, minus the money that the banks had received from the sale of the two homes.

On appeal, Robers challenged the sentence imposed pursuant to the MVRA and argued that the MVRA required the court to determine the amount of loss based upon fair market value of the homes on the date that the lenders obtained title to the house, as opposed to the fair market value on the date that the properties were sold.

Justice Breyer, writing the majority opinion, found that the stolen property was not returned to the victim until the victim received money from the sale of the collateral. In reaching this conclusion, Justice Breyer found “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.” The majority also found that losses occurring because of a decline in the value of collateral are directly related to the offender having obtained collateralized property through fraud and, therefore, were foreseeable.

Justice Sotomayor, in a separate concurring opinion, accepted Justice Breyer’s analysis, but suggested that if a victim chooses to hold the collateral rather than sell it in a reasonable time, the victim must bear the risk of any substantive decline in the value of the collateral. In such a case, Justice Sotomayor would place the burden on the defendant to show specific evidence that the victim unreasonably delayed in selling the collateral.

Because Robers did not argue that the banks in question chose to hold the collateral for an unreasonable period of time, and because the delay appeared to be reasonable, he was responsible for the loss in value caused by the delay.