United States v. Benjamin Robers , 698 F.3d 937 ( 2012 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3794
U NITED S TATES OF A MERICA,
Plaintiff-Appellee,
v.
B ENJAMIN R OBERS,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 10 CR 95—Rudolph T. Randa, Judge.
A RGUED S EPTEMBER 15, 2011—D ECIDED S EPTEMBER 14, 2012
Before F LAUM, M ANION, and S YKES, Circuit Judges.
M ANION, 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 docu-
ments 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.
2 No. 10-3794
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 sen-
tencing,
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).
1
For simplicity’s sake, we refer to the value of “the property
that is returned” as the “offset value.”
No. 10-3794 3
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 col-
lateral 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 fol-
lowed the government’s approach. See infra at 16-18. 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 18-19. 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 19.
Today we join the view of the Third, Eighth, and Tenth
Circuits—that the offset value is the eventual cash pro-
4 No. 10-3794
ceeds 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
No. 10-3794 5
Lytle and others. The scheme involved the submis-
sion 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 Proba-
tion 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
6 No. 10-3794
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 re-
sources 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 miti-
gating its loss, though, MGIC incurred additional
expenses, such as hazard insurance, yard maintenance,
and the realtor’s commission.
No. 10-3794 7
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 addi-
tional expenses related to the foreclosure sale, but Ameri-
can 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 restitu-
tion in the same amounts and the restitution awards
were all entered with joint and several liability.2 Robers
appeals, challenging only the restitution award.
2
Restitution in the amount of $166,000 was ordered to Ameri-
can Portfolio, due jointly and severally with Jose Cortez
Valadez, Case No. 07-CR-158 and John Boumenot, Case No. 09-
CR-194. And restitution of $52,952.18 was ordered to MGIC
jointly and severally with James Lytle, Case No. 07-CR-113,
Bradley Hollister, Case No. 08-CR-229, and Eric Meinel,
Case No. 09-CR-217.
8 No. 10-3794
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 foreclosure, and that
by using the eventual resale proceeds of the houses he
was wrongly held responsible for the decline in their
value. Robers also argues that many of the miscellaneous
expenses included in the loss calculation for the Grant
Street house are consequential or incidental damages
that are not properly considered in a restitution
award. 3 While generally we review a restitution order
deferentially, reversing only for an abuse of discretion,
both of Robers’s arguments present questions of the
award’s legality. As such, our review is de novo. United
States v. Webber, 536 F.3d 584, 601 (7th Cir. 2008) (“We
review de novo questions of law regarding the federal
courts’ authority to order restitution; we review for
abuse of discretion a district court’s calculation of restitu-
tion, taking the evidence in the light most favorable
to the Government.”) (internal citations omitted). See
also United States v. Yeung, 672 F.3d 594, 600 (9th Cir.
2012) (“We review the legality of a restitution order,
including the district court’s valuation method, de novo.”).
3
Robers does not argue on appeal that his minor role in
the offense and his limited economic circumstances should
reduce the restitution amount.
No. 10-3794 9
A. Offset Value
1. The statutory language
The MVRA governs federal criminal restitution and
provides, in relevant part, that a sentencing court “shall
order” defendants convicted of certain crimes to “make
restitution” to their victims.4 18 U.S.C. § 3663A(a)(1). In
the case of a crime “resulting in damage to or loss or
destruction of property of a victim,” the statute
further provides that the order of restitution shall
require the 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 sen-
tencing,
less 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).
4
Robers agreed that the ultimate victim of the Inlet Shores
fraud was American Portfiolio and that MGIC was the
ultimate victim of the Grant Street fraud.
10 No. 10-3794
Robers argues that the plain language of the MVRA
required the district court to reduce the restitution
award by the value of the mortgaged real estate as of
the date of foreclosure because that is the value “as of
the date the property is returned.” He contends that it
was legal error for the court to calculate the offsetting
amount based on the eventual resale prices of the real
estate because the houses were resold many months
after the foreclosure actions gave title to the victim
lenders. 5 And with the burst of the real estate bubble in
the mid-2000s, Robers maintains that the houses sold
for less, not based on his fraud, but for other
unrelated reasons. The government responds that
Robers’s argument misreads the MVRA and argues that
under the plain language of the MVRA, the restitution
award is only reduced at the time that the mortgaged
collateral is sold because cash is the property that was
taken and cash is only returned at that point in time.
We agree with the government. More specifically,
we hold that in calculating a restitution award where,
as in this case, cash is the property taken, the restitu-
tion amount is reduced by the eventual cash proceeds
recouped once any collateral securing the debt is sold.
We reach this holding based on the plain language of
the MVRA. The MVRA states that the restitution award
is reduced by “the value (as of the date the property is
5
The Inlet Shores house was sold 31 months after foreclosure
but it is unclear from the record when the Grant Street real
estate was sold.
No. 10-3794 11
returned) of any part of the property that is returned.” 18
U.S.C. § 3663A(b)(1)(B)(ii) (emphasis added). Read in
the context of the statute, “the property” must mean the
property originally taken from the victim. The applicable
subsection of the MVRA first addresses the situation
we have here—where there is “damage to or loss or
destruction of property of a victim of the offense.” In this
case the “loss” the victims suffered was a significant
amount of cash. Next, it refers to the return of “the prop-
erty to the owner.” 18 U.S.C. § 3663A(b)(1). In this case,
since the property taken from the victims was cash, the
two houses purchased with the cash were not the
property taken from the lenders, but rather were
collateral that secured the cash loans. The two cannot be
equated. Cash is liquid. Real estate is not. The victim-
lender was defrauded out of cash and wants cash back;
the victim does not want the houses and they do not, in
any way, benefit from possessing title to the houses
until they are converted into cash upon resale. Under
the plain language of the statute, what matters is when
at least part of the cash was returned to the vic-
tims—not when the victims received title to the houses
securing the loans. And the cash was returned to
the victims only when the collateral houses securing
the loans were eventually resold.
Our interpretation of the MVRA gives the phrase “the
property” a consistent meaning throughout the statute:
It always means “the property stolen.” Robers’s inter-
pretation, on the other hand, seeks to give the
phrase “the property” a different meaning within the
same statutory section. Under Robers’s interpretation
12 No. 10-3794
the property returned would be the collateral houses
and their estimated value at the time the victim receives
title. However, “[t]here is a natural presumption that
identical words used in different parts of the same act
are intended to have the same meaning.” Matter
of Merchants Grain, Inc. By and Through Mahern, 93 F.3d
1347, 1356 (7th Cir. 1996) (quoting Atlantic Cleaners &
Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932)). The
MVRA directs the court to offset the loss by “the value
(as of the date the property is returned) of any part of
the property that is returned.” Under Robers’s interpreta-
tion “any part” of the property returned would have to
refer to the collateral house. Obviously part of a house
cannot be returned. Nor can a house (or any part of a
house) be the same as cash. It is only when “the property”
means “the property stolen” (cash) that the “any part”
language makes sense, because then it is possible to
return only a part of the property. A house is not part of
the cash. Thus, our reading both gives the phrase “the
property” a consistent meaning throughout the MVRA
and does not render the “any part” language of the
statute superfluous or nonsensical.
2. The MVRA’s statutory goal
The MVRA’s overriding purpose is “to compensate
victims for their losses.” United States v. Pescatore, 637 F.3d
128, 138 (2d Cir. 2011) (internal quotations omitted). And
[b]ecause the MVRA mandates that restitution
be ordered to crime victims for the “full amount” of
No. 10-3794 13
losses caused by a defendant’s criminal conduct, see 18
U.S.C. § 3664(f)(1)(A); United States v. Reifler, 446 F.3d
at 134 . . . , it can fairly be said that the “primary and
overarching” purpose of the MVRA “is to make
victims of crime whole, to fully compensate these
victims for their losses and to restore these victims to
their original state of well-being.”
United States v. Boccagna, 450 F.3d 107, 115 (2d Cir. 2006)
(quoting United States v. Simmonds, 235 F.3d 826, 831 (3d
Cir. 2000).
Our holding is consistent with the goals of the MVRA,
as well as the concept of restitution. The offset amount
for purposes of restitution is the cash recouped
following the disposition of the collateral. Otherwise
the victims would not be made whole again because
the eventual sales proceeds could be, as they were in
this case, woefully inadequate to fully compensate the
victims for their loss and to put them in the position
they would have been absent the fraud.
Robers claims otherwise, asserting that our reading of
the MVRA makes him the insurer of real estate values
and improperly holds him responsible for declines in
the real estate market. Robers then posits that the victims’
losses in this case were caused by the collapse of the
real estate market and not his fraud. Therefore holding
him responsible for the further decline in the real
estate values—after the victims acquired title to the
houses—violates the underlying purpose of the MVRA.
Not so. Contrary to Robers’s argument, his fraud
actually caused the losses at issue here. Absent his fraudu-
14 No. 10-3794
lent loan applications, the victim lenders would
not have loaned the money in the first place. Likewise
the mortgage notes would not have been extended,
not paid, and then defaulted upon. 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 decline in the real estate market does not mitigate
his fraud. Robers lied about several things—his intent to
reside in the house as his primary residence, his promise
to pay the mortgage, his inflated income, and his exag-
gerated asset value. Absent Robers’s fraud, the decline
in the real estate market would have been irrelevant:
Assuming he actually qualified for the loans, he would
be living in the house and making the mortgage pay-
ments out of the income he claimed to be earning. If
his assets had the value he claimed, he would not want
to risk using them to satisfy any deficiency following
a foreclosure sale. The declining market only became
an issue because of Robers’s fraud. See Yeung, 672 F.3d
at 603 n.5 (“[H]ere Yeung created the circumstances
under which the harm or loss occurred through her use
of false information that induced the Long Beach Trust
to purchase the loan. Because the Long Beach Trust’s loss
is directly related to Yeung’s offense, the declining
value of the real estate collateral, even if attributable to
general financial conditions, does not disrupt the causal
chain, and the victims of the fraud are entitled to restitu-
No. 10-3794 15
tion.”) (internal citation omitted). 6 Essentially Robers
wants a bailout, leaving the victims of his fraud to
suffer the consequences of his deceit. Robers, not his
victims, should bear the risk of market forces beyond his
control. See United States v. Rhodes, 330 F.3d 949, 954 (7th
Cir. 2003) (“[The defendant], rather than the victims,
should bear the risk of forces beyond his control.” (quoting
district court opinion)).
If the real estate values increased, thereby allowing
the creditor to resell the houses at a higher amount
than owed, the bank would not be entitled to a restitu-
tion award. Similarly, if the increased sales price
merely reduced the bank’s loss, it would obviously be
error for the district court to order restitution based on
the earlier lower market value because “[t]he VWPA and
MVRA ensure that victims recover the full amount of
their losses, but nothing more.” United States v. Newman,
144 F.3d 531, 542 (7th Cir. 1998). See also United States v.
Smith, 156 F.3d 1046, 1057 (10th Cir. 1998) (“[A] district
court may not order restitution in an amount that
exceeds the loss caused by the defendant’s conduct. Such
a restitution order would amount to an illegal sentence.
[T]he imposition of an illegal sentence constitutes plain
error.”) (internal quotations omitted). Thus, what Robers
truly seeks is a one-way ratchet. But “the ‘intended benefi-
ciaries’ of the MVRA’s procedural mechanisms ‘are the
6
Contrary to our holding, Yeung held that the offset value
for purposes of restitution is the collateral’s value at the time
title transfers to the loan holder. See infra at 25-28.
16 No. 10-3794
victims, not the victimizers.’ ” United States v. Moreland,
622 F.3d 1147, 1172 (9th Cir. 2010) (quoting United States
v. Grimes, 173 F.3d 634, 639 (7th Cir. 1999)).7
3. Seventh Circuit precedent
Our holding is consistent with this circuit’s previous
decisions reached in non-precedential orders. In United
States v. Cage, 365 Fed. App’x 684, 687 (7th Cir. 2010), this
court stated:
The restitution amount proposed by the government
and adopted by the court at sentencing was
the amount in mortgage loans that Cage helped to
fraudulently secure less the amount the lenders recov-
ered through the sale of the fraudulently purchased
properties. This was a proper way to calculate the
amount of restitution [] owed . . . .
7
If a district court had entered a restitution order based on
the estimated fair market value of the real estate prior to
resale and the eventual sales proceeds ended up higher, a
defendant could come back to court and request that the
restitution award be reduced. Rather than speculate and
then later adjust the restitution award, we believe the better
approach is to do what, according to the government, the
Eastern District of Wisconsin does: If the collateral real estate
has not been sold by the time of sentencing, the court enters
a restitution award for the total loss to the victims and once
the real estate is sold, the court modifies the restitution
award based on the cash proceeds.
No. 10-3794 17
And in United States v. Bates, 134 Fed. App’x 955 (7th
Cir. 2005), we explained the difference between the prop-
erty stolen (cash) and the property returned (real estate
collateral) stating:
Bates insists that Coldwell did not suffer any com-
pensable loss because it ended up with the
residence, and that the “loss” claimed by the realtor
in fact consists of unrecoverable “incidental and
consequential damages” and “lost profits.” Bates,
though, did not take a house from Coldwell; she
caused the realtor to lose cash, but cash is not
what was “returned” to Coldwell. Coldwell as-
sumed temporary ownership of the residence only
as a means of mitigating Bates’s fraud, and so long as
Coldwell possessed a residence it did not want instead
of the funds Bates caused it to expend, the realtor was
not made whole—Bates’s fraud placed Coldwell in the
position of real estate seller rather than realtor.
Id. at 958.
These Seventh Circuit decisions, though, as noted, are
non-precedential.8 The other circuits are split on the
8
In United States v. Shepard, 269 F.3d 884, 888 (7th Cir. 2001), this
court also considered the question of the appropriate amount
of offset, but Shepard is distinguishable from the case at
hand. In Shepard, the defendant argued that “he and his
wife ‘returned’ about $12,000 of the [stolen] $92,000 by using
it to make improvements in [the victim’s] home.” Id. at 887.
We noted that “to the extent improvements increased the
(continued...)
18 No. 10-3794
appropriate offset amount to use in calculating restitu-
tion.9 In a series of cases, the Ninth Circuit has held
8
(...continued)
market value of [the victim’s] house, and thus were (or
could have been) realized by [the victim’s] estate in selling
the property, the funds were ‘returned’ for statutory purposes.”
Id. We continued: “It is no different in principle from taking
the money from one of [the victim’s] bank accounts and deposit-
ing it in another a week later. So long as [the victim] regained
beneficial use of the property, it has been ‘returned’ as
§ 3663A(b)(1)(B)(ii) uses that term.” Id. at 887-88. In Shepard,
though, the government did not contend that the “the change
of the property’s form—from cash to, say, central
air conditioning—precludes a conclusion that the property
has been ‘returned.’ ” Id. at 888. Moreover, in Shepard, the
victim was using and benefitting from the home improve-
ments, whereas in this case, the victims were not using the
collateral, but were merely attempting to sell the collateral to
recoup their stolen property—cash. Finally, while Shepard
remanded the case for determination of “the amount by which
improvements enhanced the market value of the house,” there
was no discussion concerning the appropriate time for this
valuation, i.e., upon resale of the house or at the time the
home improvements were made. Id. Thus, Shepard does not
answer the question before us.
9
The following cases interpret both the MVRA and its prede-
cessor, the Victim and Witness Protection Act of 1982
(“VWPA”). Unlike the MVRA, the VWPA required courts to
consider the economic circumstances of the defendant prior
to ordering restitution, and the granting of restitution was
discretionary, not mandatory. See 18 U.S.C. § 3663. “With
(continued...)
No. 10-3794 19
that the offset amount is the fair market value of the
collateral real estate at the date of foreclosure when
the victim-lender took title and could have sold it for cash.
See United States v. Smith, 944 F.2d 618, 625-26 (9th
Cir. 1991); United States v. Hutchison, 22 F.3d 846, 856 (9th
Cir. 1993); United States v. Catherine, 55 F.3d 1462, 1465
(9th Cir. 1995); United States v. Davoudi, 172 F.3d 1130, 1135
(9th Cir. 1999); United States v. Gossi, 608 F.3d 574, 578 (9th
Cir. 2010); United States v. Yeung, 672 F.3d 594, 605 (9th Cir.
2012). The Second and Fifth Circuits have similarly
held that in a mortgage fraud case, the restitution offset
is based on the fair market value of the collateral at the
time it is returned to the victim. See United States v.
Boccagna, 450 F.3d 107, 120 (2d Cir. 2006); United States
v. Holley, 23 F.3d 902, 915 (5th Cir. 1994). Conversely, the
Third, Eighth, and Tenth Circuits have held that it is
proper to base the offset value on the eventual
amount recouped by the victim following sale of the
collateral real estate. See United States v. Himler, 355 F.3d
735, 745 (3d Cir. 2004); United States v. Statman, 604
F.3d 529, 538 (8th Cir. 2010); United States v. James, 564
F.3d 1237, 1246-47 (10th Cir. 2009).
9
(...continued)
these exceptions, the two statutes are identical in all
important respects, and courts interpreting the MVRA may
look to and rely on cases interpreting the VWPA as prece-
dent.” See United States v. Gordon, 393 F.3d 1044, 1048
(9th Cir. 2004).
20 No. 10-3794
4. Circuits holding that the offset value is deter-
mined based on the estimated fair market value
of the collateral securing the loans at the date
of foreclosure when title is transferred to
the lender
Our conclusion conflicts with the view of the Ninth,
Fifth, and Second Circuits. As noted above, those courts
all held that the offset amount is the estimated fair
market value of the collateral at the date of foreclosure.
In reaching this conclusion, the courts all purported to
rely on the plain language of the MVRA, stressing that
under the MVRA, courts are to reduce the restitution
award by “the value (as of the date the property is re-
turned).” But none of those cases actually addressed
the question of what constitutes “the property” under
the statute. And their conclusions are based on the
courts improperly treating the collateral recovered as
the property stolen.
a. The Ninth Circuit
Examining the development of the case law in the
Ninth Circuit illuminates this omission. Smith was the
first of the cases to consider the appropriate offset in a
similar situation—where the victim lent cash based on
the defendant’s fraud and eventually foreclosed on the
real estate securing the loan. Smith, 944 F.2d at 620-21. In
Smith, the defendant asserted “that the district court
failed to give him adequate credit against the restitu-
tion amount for the value of the collateral property,”
arguing that the court should have used the value of the
No. 10-3794 21
real estate at the time the victims regained title to
the property. Id. at 625. Smith alleged “that because
the value of Texas real estate steadily declined through-
out the time in question, the measurement of the
property’s value at the later dates resulted in an inade-
quate credit for the collateral property, and that there-
fore the restitution figure is far too high.” Id. The Ninth
Circuit agreed with defendant Smith. And Smith serves
as the linchpin for further cases. Because the court went
astray in Smith by applying language in the much
different property restitution case (Tyler), we quote its
reasoning in full:
We agree with Smith that the district court used
incorrect dates in valuing the property. The Act pro-
vides that if a victim has suffered a loss of property,
the district court may order restitution in the
amount of this loss “less 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) (emphasis
added). We interpreted this portion of the Act in
United States v. Tyler, 767 F.2d 1350 (9th Cir. 1985)
(Tyler), in which Tyler pled guilty to theft of timber
and was ordered to pay restitution under the Act.
The district court determined the amount of restitu-
tion as the difference between the value of the timber
at the time of sentencing and the higher value at the
time of theft. Id. at 1351. Because the government
recovered the timber on the day of the theft,
however, we concluded that “[a]ny reduction in its
value stems from the government’s decision to hold
the timber during a period of declining prices, not
22 No. 10-3794
from Tyler’s criminal acts.” Id. at 1352. The value of
the property “ ‘as of the date the property [was] re-
turned’ ” equaled the amount lost when the timber was
stolen, and therefore restitution under the Act was
inappropriate. Id. (quoting 18 U.S.C. § 3579, which was
subsequently renumbered as 18 U.S.C. § 3663).
The same reasoning should apply in determining
the value of the collateral property in this case.
Smith should receive credit against the restitution
amount for the value of the collateral property as of
the date title to the property was transferred to
either Savings & Loan or Gibraltar. As of that
date, the new owner had the power to dispose of the
property and receive compensation. Cf. 18 U.S.C.
§ 3663(e)(1) (restitution may be ordered for any
person who has compensated a victim). Value
should therefore be measured by what the financial
institution would have received in a sale as of that
date. Any reduction in value after Smith lost title to
the property stems from a decision by the new
owners to hold on to the property; to make Smith pay
restitution for that business loss is improper. See
Tyler, 767 F.2d at 1352. The victims in this case
“receive[d] compensation” when they received title
to the property and the corresponding ability to sell
it for cash; the value of the compensation should
therefore be measured and deducted from the total
loss figure as of the date title was transferred. 18
U.S.C. § 3663(e)(1). Because the law is clear, to do
otherwise would be an abuse of discretion.
Id. at 625-26.
No. 10-3794 23
There are several flaws in Smith’s reasoning. First,
Smith quoted, with emphasis, the “less the value (as of
the date the property is returned)” language from the
MVRA, but ignored the fact that the property returned
was not the property stolen. See Smith, 944 F.2d at 631-
32 (O’Scannlain, J., dissenting) (explaining that the
majority “erroneously treats the five collateral properties
as if they are somehow equivalent to the stolen capital,”
but “[w]hat Smith stole was capital, and to restore his
victims to the status quo ante, he must return the
present value of that capital.”). Second, and relatedly,
the Ninth Circuit in Smith relied heavily on its decision
in Tyler to support its reasoning, but Smith’s reliance
on Tyler was misplaced because in Tyler, the defendant
was charged with theft of government timber and the
exact same property (i.e., the timber) was recovered on
the very day of the theft. Thus, Tyler does not support
the view that “the property” in the MVRA means any
property returned, as opposed to the property stolen.
See Smith, 944 F.2d at 632 (O’Scannlain, J., dissenting)
(“Nor does our decision in United States v. Tyler, 767
F.2d 1350 (9th Cir. 1985), upon which both the
majority and Smith rely, support the court’s holding. See
ante at 624-25. A defrauded lender’s assumption of
title over collateral property that is itself part of the
fraud is in no way analogous to a timber owner’s
recovery of stolen timber.”) Third, Smith reasoned that
as of the date the victim received title to the collateral,
the new owner had the power to dispose of the real
estate and receive compensation, and accordingly the
value of the real estate should be based on the amount
24 No. 10-3794
the financial institution would have received in a sale as
of that date. This reasoning ignores the reality that
real property is not liquid and, absent a huge price dis-
count, cannot be sold immediately. Fourth and finally,
the court in Smith unreasonably assumed that any re-
duction “after Smith lost title to the property stems from
a decision by the new owners to hold on to the prop-
erty.” Smith, 944 F.2d at 625. This rationale also incor-
rectly assumes that real estate is liquid—which it is not.
We say all of this because the Ninth Circuit’s deci-
sion in Smith served as the keystone for all of the subse-
quent decisions holding that the offset value is the fair
market value of the collateral real estate on the date
the title to the collateral reverted to the victim. For in-
stance, in United States v. Hutchinson, 22 F.3d 846 (9th
Cir. 1993), the defendant challenged the district court’s
use of the final sales price as the offset value. Based
on Smith, the Ninth Circuit agreed that the appropriate
offset was the value of the collateral at the time the
bank gained control of the real estate. Similarly, in
United States v. Catherine, 55 F.3d 1462 (9th Cir. 1995),
the defendant argued that the district court should
have valued the real estate for offset purposes at the
time the victim foreclosed on the collateral real estate,
and the Ninth Circuit stated: “We decided this exact
issue in Hutchinson, id. at 854-56, which in turn, relied
on United States v. Smith.” Id. at 1465. The court in
Catherine then followed these precedents and reversed
and remanded the case for the district court to value
the collateral at the time the bank received title. Id. And
in United States v. Davoudi, 172 F.3d 1130 (9th Cir. 1999),
No. 10-3794 25
the Ninth Circuit again held that the district court erred
in basing its offset valuation on the eventual sales price
of the collateral. Davoudi parroted Smith’s reasoning and
cited Smith, Catherine, and Hutchinson. Then in United
States v. Gossi, 608 F.3d 574 (9th Cir. 2010), the Ninth
Circuit relied on Davoudi, to conclude: “Under this Court’s
precedent, the district court reasonably found that [the
victim] had the power to dispose of the property at the
time it took control of the property at foreclosure. ‘Value
should therefore be measured by what the financial
institution would have received in a sale as of that date.’ ”
Id. at 578 (quoting Smith, 944 F.2d at 625).
The final and most recent decision from the Ninth
Circuit is United States v. Yeung, 672 F.3d 594 (9th Cir.
2012). In Yeung, the court considered the propriety of
several restitution orders to financial institutions which
suffered losses following a fraudulent real estate
scheme and stated:
Using the framework set forth in § 3663A(b), we
have developed some guidelines for calculating the
restitution amount in a case involving a defendant’s
fraudulent scheme to obtain secured real estate loans
from lenders. Generally, district courts calculating
a direct lender’s loss in this context begin by deter-
mining the amount of the unpaid principal balance
due on the fraudulent loan, less the value of the
real property collateral as of the date the direct
lender took control of the property. United States v.
Hutchison, 22 F.3d 846, 856 (9th Cir. 1993); United
States v. Smith, 944 F.2d 618, 625-26 (9th Cir. 1991)
26 No. 10-3794
(construing the VWPA). Because restitution should
address a victim’s “actual losses,” see Smith, 944 F.2d
at 626, we have approved restitution awards that
included other amounts in the calculation of loss,
such as prejudgment interest (using the govern-
mental loan rate), id., interest still due on the loan,
Davoudi, 172 F.3d at 1136, and expenses associated
with holding the real estate collateral that were in-
curred by the lender before it took title to the
property, Hutchison, 22 F.3d at 856. To calculate
the value of the real property collateral “as of the date
the property is returned,” § 3663A(b)(1)(B)(ii), courts
use the value of the collateral “as of the date the victim
took control of the property,” Davoudi, 172 F.3d at 1134.
The lender does not take control of the collateral
merely by triggering the foreclosure process. See
United States v. Gossi, 608 F.3d 574, 578 (9th Cir.
2010). Rather, the lender generally takes control on
the date the lender either (1) receives the net
proceeds from the sale of the collateral to a third
party at the foreclosure sale, see United States v. James,
564 F.3d 1237, 1246 (10th Cir. 2009), or (2) takes title
to the real estate collateral at the foreclosure sale, at
which time “the new owner had the power to
dispose of the property and receive compensation,” see
Smith, 944 F.2d at 625. The direct lender’s losses may
also be reduced by amounts recouped from resale of
the loan or from other types of “return” of property.
See, e.g., Hutchison, 22 F.3d at 856.
Id. at 601.
No. 10-3794 27
On the basis of this precedent, the Ninth Circuit in
Yeung then reversed the district court’s restitution
awards, which were based on the subsequent sales price
of the real estate, and remanded to the district court.1 0
As the above excerpt from Yeung makes clear, its
holding was based on the well-established precedent
that flowed from Smith. And as discussed above, none
of those cases addressed the fundamental distinction
between the property stolen (cash) and the property
recovered (real estate). Like its predecessors, Yeung did
not recognize that the Smith decision relied on Tyler,
which was factually distinguishable from all of the
10
Yeung also held that “when a victim purchased a loan in the
secondary market, that is, where the victim is the loan
purchaser as opposed to the loan originator . . . the value of
that loan is not necessarily its unpaid principal balance, but
may vary with the value of the collateral, the credit rating of
the borrower, market conditions, or other factors, [and thus]
the loan purchaser may have purchased the loan for less than
its unpaid principal balance.” Yeung, 672 F.3d at 601-02. The
Ninth Circuit in Yeung then remanded the case to the district
court to recalculate the restitution award. Robers filed Yeung
as supplemental authority and argued that, as in Yeung,
remand is required to determine the price at which the loans
were purchased in the secondary market. Robers, however,
had never previously argued (either before the district court
or in briefing or at oral argument) that the restitution award
was improperly based on the outstanding principal balance,
as opposed to some potentially lower amount paid for the
loans in the secondary market. Therefore, he has waived
these issues.
28 No. 10-3794
cases at hand because Tyler involved a case where the
property the defendant was charged with stealing was
the same as the property returned to the victim (timber)
and the theft and return happened on the same day.
b. The Fifth Circuit
The Smith decision has likewise served as the basis
for other circuits holding that the offset value is the
value of the collateral at the time of foreclosure. In
United States v. Holley, 23 F.3d 902, 915 (5th Cir. 1994), the
Fifth Circuit, like the Ninth Circuit, held that the
offset value should be based on the fair market value
on the date of foreclosure. In coming to this conclusion,
the Fifth Circuit first stated that its decision in United
States v. Reese, 998 F.2d 1275 (5th Cir. 1993), dictated
the result. It noted that in Reese it had
explained that “it would appear that the ‘property’
as to which [the savings and loan] might have
suffered ‘damage to or loss or destruction of’ could
only be loan proceeds funded in cash at the
original closing of [the improperly extended] loan.”
Id. at 1283. However, we also explained that when
the real property that secures such a loan is deeded
back to the financial institution, “the value of
such property should constitute a partial return of
the ‘cash loan proceeds.’ ” Id. at 1284.
Holley, 23 F.3d at 915.
But the court’s reasoning in Reese was limited to this
statement: “Conceptually, it would seem to us that
No. 10-3794 29
when a lender accepts conveyance of the se-
cured property in lieu of foreclosure, the value of
such property should constitute a partial return of the
‘cash loan proceeds.’ ” Reese, 998 F.2d at 1284. This rea-
soning ignores the fact that the victim accepted the col-
lateral real estate, not in lieu of the cash proceeds, but
in order to sell and recoup the cash proceeds.
After citing the reasoning of Reese, the court in Holley
then turned to Smith, stating:
The Smith court held that the defendant “should
receive credit against the restitution amount for
the value of the collateral property as of the date
title to the property was transferred” to the FSLIC’s
successor. Id. at 625. The court reasoned that, as of
that date, “the new owner had the power to dispose
of the property and receive compensation.” Id. The
Smith court concluded that the value of the returned
property “should therefore be measured by what
the financial institution would have received in a
sale as of that date. Any reduction in value after
[the defendant] lost title to the property stems
from a decision by the new owners to hold on to
the property.” Id.
Holley, 23 F.3d at 915.
Unlike the Ninth Circuit’s decision in Smith, the Fifth
Circuit in Holley at least acknowledged the government’s
argument “that the ‘property’ that was lost was [the
bank’s] capital and that the return of [the real estate] to [the
bank] represents only the return of the collateral for the
30 No. 10-3794
actual property involved in this case” and that it was not
until that collateral was sold for cash that the victim
regained its property. Id. But Holley did not provide any
basis for ignoring this distinction, other than citing its
previous decision in Reese. See id. And Reese merely con-
cluded that there was no “conceptual” difference.
Reese, 998 F.2d at 1284. However, as explained above,
the two are not conceptually equivalent: cash is liquid,
real estate is not; the collateral secured the cash
loan—it was not the cash loan; and the victim had cash
before the fraud and wanted cash back as its returned
property. In short, we find the Fifth Circuit’s reasoning
in Reese unpersuasive and thus its decision in Holley
adds nothing to the analysis.
c. The Second Circuit
Finally, the Second Circuit addressed the issue of offset
value in United States v. Boccagna, 450 F.3d 107 (2d Cir.
2006). In Boccagna, the defendants were charged in a
mortgage fraud scheme involving the United States
Department of Housing and Urban Development (“HUD”).
Id. at 109-110. HUD foreclosed on the collateral and then
resold the real estate at a fraction of their fair market
value to the New York City Department of Housing
Preservation and Development in order to further its
mission to develop low-cost housing. Id. at 110. When
considering the appropriate amount by which to offset
the victim’s loss, the Boccagna court initially noted that
the government did not argue that “the property that is
returned” language of the MVRA only applies to actual
No. 10-3794 31
cash and not to “any property that HUD obtained after
default.” Id. at 112 n.2. The court then said that “[s]uch an
argument would not be convincing,” but based its holding
on precedent from the Fifth and Ninth Circuits.1 1 Id.Boccagna explained:
As two of our sister circuits, construing identical offset
language in the Victim and Witness Protection Act,
codified at 18 U.S.C. § 3663, have concluded, when
a lender victim acquires title to property securing a
loan, “the value of such property should constitute
a partial return of the cash loan proceeds.” United
States v. Holley, 23 F.3d 902, 915 (5th Cir. 1994) (internal
quotation marks omitted); see United States v. Smith,
944 F.2d 618, 625 (9th Cir. 1991) (holding that defen-
dant “should receive credit against the restitution
amount for the value of the collateral property as
of the date title to the property was transferred”
to lender victim).
Boccagna, 450 F.3d at 112 n.2.
The Second Circuit in Boccagna then went on to hold that
the offset value should generally be based on the fair
market value of the real estate at the time of foreclosure.
Id. at 109. Boccagna, thus, adds nothing to the analysis,
having merely relied on Holley and Smith—which were
incorrect for the reasons noted above.
11
The court in Boccagna also cited this court’s decision in
Shepard. But as discussed above, see supra at 17-18 n.8,
Shepard is distinguishable.
32 No. 10-3794
In sum, as our detailed discussion of the Ninth, Fifth and
Second Circuits’ decisions explains, those decisions all
relied on the keystone decision in Smith. And the
Ninth Circuit’s reasoning in Smith is flawed for several
reasons: Smith purported to rely upon the statutory
language but ignored the distinction between the
property stolen (cash) and the property returned (real
estate). Compounding this error was Smith’s reliance
on Tyler which was factually distinct. In Tyler, the defen-
dant was charged with stealing timber and the property
recovered—on the same day as the theft—was timber.
Thus, Tyler does not answer the question of the
appropriate offset value where the property stolen and
returned differ. The Ninth Circuit in Smith also treated
real estate as a liquid asset. But it was not liquid
because the collateral could not be turned into cash the
same day title transferred. The court misconstrued the
market forces by assuming that the only reason collateral
would not be immediately turned into cash would be a
deliberate decision by the victim to hold on to the property.
Beyond Smith’s faulty reasoning, the only additional
rationale for using the value of real estate at the time the
victim obtained title to the collateral was the Fifth
Circuit’s view in Reese that, conceptually, obtaining title
to real estate is the same as receiving cash. But it is not:
real estate is not liquid; it is not what was stolen; it is
not what the victim wants; and it does not benefit the
victim in any way until it is turned back into cash upon
resale. Accordingly, it is only when the real estate is
converted into cash through a future sale that the offset
value should be determined. The plain language of the
No. 10-3794 33
MVRA dictates this conclusion because “the value (as of
the date the property is returned),” 18 U.S.C. § 3663(b)
(emphasis added), in the context of the statute must mean
the property taken from the victim. But even if there were
any ambiguity in the meaning of “the property,” we would
interpret that language to best achieve the statutory goal of
the MVRA—to make the victim whole—and this goal is
best achieved by calculating restitution based on the actual
cash proceeds recouped following the resale of any collat-
eral real estate.
5. Circuits holding that the offset value is deter-
mined based on the cash proceeds recouped
following resale of the collateral real estate.
This brings us now to the decisions from the Third,
Eighth and Tenth Circuits, which have all held that their
respective district courts correctly used, as the offset value
for calculating restitution, the eventual proceeds recouped
following a foreclosure sale.1 2
a. The Third Circuit
The Third Circuit addressed this issue in United States
v. Himler, 355 F.3d 735 (3d Cir. 2004). In Himler, the defen-
12
As discussed earlier, see supra at 23, Judge O’Scannlain
dissented in the pivotal Ninth Circuit opinion (United States
v. Smith), preferring the same approach to the offset valuation
later approved by the Third, Eighth, and Tenth Circuits.
34 No. 10-3794
dant had fraudulently purchased a condominium by
tendering false checks to a settlement company that in
turn paid the seller $193,833. Id. at 737. The district
court ordered Himler “to pay restitution in the amount of
$193,833—to be reduced by the ultimate net proceeds
from the sale of the condominium.” Id. at 744. The Third
Circuit upheld that award, noting first that the victim
in this case “was not a seller of the condominium who
was returned to his or her pre-crime position upon
reobtaining title to the condominium. Rather, [the
victim] was the settlement company that facilitated the
purchase and sale between [the seller] and [the defen-
dant].” Id. And deeding the collateral real estate back to
the settlement company did not adequately compensate
the victim for its loss.1 3 Id. at 744-45. The Third Circuit
then noted that the government had conceded that the
statute requires a district court to “value” the property
“as of the date the property is returned” to the victim.
Id. at 745. But the court agreed with the government that
the district court did not abuse its discretion in entering
a restitution order that would be reduced by the future
proceeds from the real estate’s sale. Id. In reaching this
conclusion, the court noted that, had the offset amount
been determined prior to its sale, the defendant would
have been left with a high bill because market forces
13
In Himler, the court also noted that the defendant had pur-
chased the condominium at an inflated price ($193,833)
while other similar condominiums were selling between
$150,000 and $160,000. Himler, 355 F.3d at 744.
No. 10-3794 35
allowed the condominium to sell for $181,000, whereas at
the time title transferred to the settlement company,
similar condominiums were selling for $150,000 to
$160,000. Id.In Himler, the Third Circuit seemed to rely on the fact
that the defendant was in a better position under the
district court’s approach because the real estate values
had increased between the time title transferred and
the resale. Id. at 745. Obviously, we have the converse
here, but what Himler’s reasoning illustrates is that with
fluctuating real estate values, the only way to measure
the true loss to the victim is by looking to the actual
resale price of the collateral real estate. Under the MVRA,
the actual loss is the appropriate measure of restitution.
b. The Tenth Circuit
In United States v. James, 564 F.3d 1237 (10th Cir. 2009),
the Tenth Circuit also upheld a restitution award that
calculated the total loss by subtracting the eventual resale
price of the collateral real estate from the initial loan
proceeds. Id. at 1246-47. In James, the Tenth Circuit rea-
soned that “[b]ecause, in this case, the foreclosure
price method more closely reflects the actual loss [the
victim] experienced, we cannot say the district court’s
method of using that value was unreasonable or that it
otherwise erred in using that valuation method in deter-
mining the amount of restitution under the MVRA.” Id.36 No. 10-3794
c. The Eighth Circuit
Similarly, in United States v. Statman, 604 F.3d 529 (8th
Cir. 2010), the Eighth Circuit upheld the district court’s
use of the eventual proceeds from a foreclosure sale as
the offset value. Id. at 538. In that case, the defendants
had been charged with wire fraud in relation to a
scheme to purchase a business. Id. at 532. Among
other things, in purchasing the business they assumed a
bond secured by real estate. Id. at 536. Following their
conviction for fraud, at sentencing defendant Rund ob-
jected to the government’s methodology for calculating
restitution. Id. at 537. Then on appeal Rund argued
that “the district court erred because the loss to [the
victim] should not have been calculated based on the
alleged foreclosure sale price but [, instead, on] the as-
sessed value of the properties.” Id. The court rejected
Rund’s approach, which, as the Eighth Circuit explained,
“would have this court use the appraised value of the
foreclosed property to calculate the loss amount, which
would result in a lower restitution payment to [the vic-
tim].” Id. In rejecting Rund’s approach, the Eighth
Circuit stressed the overarching goal of the MVRA—
making crime victims whole—and then concluded
that “[u]nder the circumstances of this case, the
district court’s use of the foreclosure sale price pro-
vided a fair and adequate representation of [the vic-
tim’s] loss and satisfied the overarching goal of the
MVRA, to make [the victim] whole.” Id.The Himler, 355 F.3d 735, Statman, 604 F.3d 529, and
James, 564 F.3d 1237, decisions all support our conclusion
No. 10-3794 37
today that the offset value is best determined by the
money eventually recouped upon the resale of the col-
lateral real estate. This conclusion is consistent with
the plain meaning of the MVRA and also furthers the
statutory goal of making the victims whole again. Ac-
cordingly, today we join the view of the Third, Eighth,
and Tenth Circuits and hold that the offset value is
the eventual proceeds recouped following a foreclosure
sale.
B. Inclusion of Other Expenditures
In addition to challenging the district court’s use of
the eventual resale price of the foreclosed real estate as
the offset value, Robers also argues on appeal that the
district court erred in including various other ex-
penditures in the restitution award related to the
Grant Street real estate. The Inlet Shores restitution
award was based solely on the difference between
loan amount and the resale amount, so there is no addi-
tional issue there. But with the Grant Street real
estate, the restitution awarded was based on the fol-
lowing figures:
38 No. 10-3794
Claim:
Unpaid Principal balance $140,478.91
Accrued interest $ 13,698.36
Attorney fees $ 1,400.00
Property taxes $2,478.10
Other expenses $450.00
Hazard Insurance $485.00
Property preservation $736.54
Statutory Disbursement $1,311.56
Less ending escrow balance ($1,823.56)
Total Claim paid: $159,214.91
Additional expenses after MGIC took over ownership:
Insurance $374.51
Utilities $112.69
Title Commitment $325.00
Broker price opinion $119.00
Claim investigation costs $715.00
Total Expenses: $1,646.20
Recovery from sale:
Sales Price $118,000.00
Broker’s commission ($8,080.00)
Prorated taxes ($1,724.68)
Title Policy ($607.00)
Settlement charges ($679.39)
Net Proceeds $107,908.93
Total Loss $52,952.18
No. 10-3794 39
In challenging these line-item expenses, Robers
merely argues that the district court did not adequately
explain how or why they should be included. And then
he stresses that consequential and incidental expenses
are not recoverable. The only specific line-item expenses,
though, for which he develops an argument are
“attorney’s fees” and “other expenses.” This court has
held that attorney’s fees expended in pursuing litigation
are not recoverable, Shepard, 269 F.3d at 887, but they are
recoverable if they represent damage to the property or
are incurred as part of an investigation for the prosecu-
tion. Scott, 405 F.3d at 620. Because we lack sufficient
detail to know on which line these attorney’s fees fall, we
vacate that portion of the restitution award. Similarly,
because we cannot know what “other expenses” means
and thus whether they are recoverable, we vacate that
portion of the restitution award as well.
We reject, however, Robers’s claim that the district court
did not adequately explain why it included the other
miscellaneous expenditures in the restitution award.
After stating that it had read the parties’ restitution
memoranda and the defense’s objections, the district
court explained:
The trend is, I think—and the thrust of Seventh
Circuit case law, and the thread that runs is becoming
stronger in this fabric, is that these expenses aren’t
going to be considered as consequential . . . . As
the government has argued, these are fraud cases.
It was a fraud that was perpetrated, which resulted
in all of these actions that had to be taken but for
40 No. 10-3794
the fraud. And that’s not putting a person, a victim in
this type of case, in a better place. It’s putting a
victim back where the victim never should have gone
and never would have been but for the conduct that
was conducted by the defendant. . . . And I deem it to
be the case in this case, as I deemed it to be in the
Bradley Hollister case. . . . so consistent with the logic
of it, I think that the logic is overwhelming, that the
fraud was committed. The victim is owed, and he’s
owed the direct expenses—I’ll call them direct ex-
penses that flow from the fraud that would not have
existed or not there—never would have been there.
Robers believes that this discussion is insufficient,
citing United States v. Hosking, 567 F.3d 329 (7th Cir.
2009), wherein the government presented only a single
document with general and vague descriptions of the
victim’s costs. Id. at 333. But the problem in Hosking
was that the district court found that the costs were not
appropriately included in restitution order and then,
rather than determine the appropriate amount of restitu-
tion, merely cut the claimed costs in half. Id. at
334. Conversely, here the only component of the award
that is unclear is the “other expenses” category, which
we have vacated. And we reject Robers’s argument that
the remainder of the restitution order was not suf-
ficiently explained.
As noted, other than his challenge to “attorney’s fees”
and “other expenses,” Robers does not challenge indi-
vidually the other line-item expenses, merely stating
that they are all consequential or incidental expenses
that cannot be recovered. We have held that con-
No. 10-3794 41
sequential or incidental expenses are not compensable
under the MVRA. Shepard, 269 F.3d at 887 (“Both § 3663A
and its predecessor § 3663 have been understood to
require restitution only for direct losses and not for
consequential damages and the other effects that may
ripple through the economy.”); United States v. Arvanitis,
902 F.2d 489, 497 (7th Cir. 1990) (“In the case of restitution
for offenses resulting in the loss of property, 18 U.S.C.
§ 3663(b) limits recovery to property which is the subject
of the offense, thereby making restitution for con-
sequential damages, such as attorneys fees, unavailable.”).
But we have also explained that the “direct” versus
“consequential and incidental” demarcation is not
exactly helpful. United States v. Scott, 405 F.3d 615, 620
(7th Cir. 2005). Rather, the better question is whether
the injury is to “property,” which is recoverable under
the MVRA, or other losses, which are not. Id. 619-20.
In Scott, we explained this principle, while holding
that an order of restitution appropriately included the
cost of an audit:
The audit expense, though a loss to Scott’s employers,
was not a gain to him. But it was a form of damage to
the [victim-] employers’ property. Suppose money
was stolen from a bank and eventually returned,
but the bank incurred a bookkeeping cost in determin-
ing whether the entire amount stolen had been re-
turned. That cost would be a diminution in the value
of the bank’s property, caused by the theft, and
would therefore be a proper item for restitution. See
United States v. Donaby, 349 F.3d 1046, 1051-54 (7th Cir.
42 No. 10-3794
2003); United States v. Rhodes, 330 F.3d 949, 953-54 (7th
Cir. 2003); United States v. Hayward, 359 F.3d 631, 642
(3d Cir. 2004). This case is no different.
Id. at 619.
Like Scott, we conclude in this case that the remainder
of the line-item expenses fall on the injury-to-property
side of the line. The property damaged by Robers’s
fraud was capital and to recoup that capital, Fannie Mae
and then MGIC had to incur numerous expenses to
safeguard, keep up, and dispose of the collateral that
secured the loan. The only way MGIC was able to regain
its capital at the end of the day, at the value it recovered
on resale, was by expending cash up front. For instance,
if real estate taxes were not current, the buyer’s offer
would be lower by an equal amount. If title insurance
were not provided, the purchase would be riskier and
the buyer would be only willing to purchase at a lower
price. If a realtor were not hired, the property would not
be marketed as effectively, again leading to a lower
amount. And maintenance and utilities expenses
preserved the collateral, and insurance safeguarded the
collateral while the victim attempted to mitigate the
damage to its property. In other words, the amounts
expended by the victim to achieve the final disposition
of the collateral real estate were incurred solely to
rectify, to the extent possible, the damage to the capital.
These expenses are directly related to Robers’s fraud
No. 10-3794 43
and are thus recoverable.1 4 Accordingly, we affirm
the restitution award, other than the award for attorney’s
fees and “other expenses,” which we vacate, and
we remand for entry of judgment consistent with this
opinion.
III. Conclusion
Robers’s fraud deprived his victims of cash. Under the
MVRA, restitution of the property stolen—here cash—was
mandatory. Because cash was stolen and cash was not
returned to the victims until the collateral securing
the fraudulent loans was sold, under the plain language
of the MVRA the value of the property returned on
the date of its return is the amount of cash recovered at
14
The Eighth Circuit in United States v. Alexander, 679 F.3d 721(8th Cir. 2012), upheld a restitution award to HUD that
included foreclosure expenses. The court in Alexander, though,
held that foreclosure expenses were recoverable under the
MVRA because HUD was a victim of the crime and “was
responsible for making such a payment to the lender based on
its guarantee of the mortgage loan.” Id. However, in the case
before us, the government seeks restitution to MGIC, not as a
victim, but because it is subrogated to the lender’s interest
pursuant to 18 U.S.C. § 3664(j)(1). Being subrogated to Fannie
Mae’s interest, then, means that MGIC steps into the shoes
of Fannie Mae and cannot recover merely because it paid
Fannie Mae’s insurance claim. See Shepard, 269 F.3d at 887.
Thus, Alexander’s analysis is inapplicable and, as we have
done above, we have focused instead on the restitution due
to MGIC not as an insurer, but as if it were the lender.
44 No. 10-3794
the time the foreclosed real estate was eventually resold.
In a stagnant, declining market, house values will
decrease and this reduction in value of the real estate is
a risk that falls on Robers, the one who defrauded
the victims. The loss in value of the real estate and the
various line-item expenses incurred by the victims
while attempting to convert the collateral back to cash
are directly caused by Robers’s fraud and constitute
recoverable damages to his property. Attorney’s fees for
collecting a debt, though, are not properly recoverable
under the MVRA and “other expenses” may not be.
Accordingly, we vacate that portion of the restitution
award. For these reasons, we A FFIRM IN P ART, V ACATE IN
P ART , and R EMAND to the district court for entry of a
restitution order consistent with this opinion.
9-14-12