Supreme Court Sets Down Rules for Mortgage Fraud Calculations and Restitution

On Monday, May 5th, the Supreme Court clarified rules for how restitution is calculated in mortgage fraud cases.

In a unanimous decision, the justices agreed that restitution to a bank that has been defrauded must be calculated on the value of the property when the property is sold, not the value of the property when it has been foreclosed upon.

The decision centers on a case of a fraudulent loan application for two houses in WIsconsin, for $470,000, filed by Benjamin Robers. The banks foreclosed on the mortgages in 2006, and after the real estate market collapsed, they were only able to resell the homes for $280,000.

Robers was ordered to serve three years’ probation and repay $218,900 after he pleaded guilty to wire fraud conspiracy in the mortgage fraud case.

“The scheme involved more than fifteen houses in a small geographical area in Walworth County, Wisconsin,” Judge Daniel Manion wrote for a three-judge panel of the 7th Circuit last year. “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. … For his role in the scheme, Robers received a mere pittance – about $500 for each loan.”

Robers had claimed, at the time he filed the mortgage applications, that he would live in the two homes as his primary residences, but the mortgages defaulted and the bank foreclosed on the houses.

The Mandatory Victims Restitution Act of 1996 required Robers to repay the victims, which in this case were the banks he defrauded. Robers tried to reduce the amount he would pay in restitution by calculating “the offset value based on the fair market value the real estate as of the date of foreclosure because that is the value ‘as of the date the property is returned’.”

The 7th Circuit was split on the question of calculating the mortgage fraud restitution, so the case went to the Supreme Court. The highest court wrote in a statement,  “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 a fraudulently obtained loan, is the money lent,” Justice Stephen Breyer wrote for the court. “Therefore, no ‘part of the property’ is ‘returned’ to the victim until 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.”

Mortgage Fraud Charges in South Carolina

Mortgage fraud is the misrepresentation of information or the omission of information on a mortgage application in order to obtain a loan or obtain a higher loan offered by the lender had they known the truth.

While “flipping” properties is legal, it becomes illegal when a nominee or straw buyer buys the property.  A nominee/straw buyer is one who buys the property for another person because the other person already has loans out on other property. If the nominee/straw buyer defaults on the mortgage, which was the case for many with the downturn of the economy, the investor may face charges of fraud for using deception to obtain the loan.

Mortgage fraud is a serious offense with stiff penalties. If convicted of mortgage fraud, you could face upwards to 30 years in prison and harsh penalties.

The Strom Law Firm Can Help with Mortgage Fraud Charges

At Strom Law Firm, LLC, our federal criminal defense attorneys provide comprehensive legal services designed to protect your rights and your interests. Our lawyers are licensed in South Carolina, New York, and Georgia. Even if you feel your involvement in the mortgage fraud scheme was minor, you may still face charges. We understand what is at stake, which is why we will fight aggressively for your name and your reputation. Call the South Carolina Criminal Defense Lawyer at the Strom Law Firm today for a free case evaluation. 803.252.4800.