Before 1996, federal courts
could award restitution to victims of financial fraud based on “the financial
resources of the defendant, [and] the financial needs and earning ability of
the defendant and the defendant’s dependents.” Victim and Witness Protection
Act of 1982 (codified as amended at 18 U.S.C. § 3664). But with the passage of
the Mandatory Victims Restitution Act of 1996, Congress stripped courts of the
discretion to award restitution in most criminal cases where a victim has been
defrauded of money.
In the context of mortgage fraud, the Act requires that courts order the defendant to “return the property to [its] owner.” 18 U.S.C. § 3663A(b). In cases where the “return of the property . . . is . . . inadequate,” the defendant must also sometimes pay 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.” Id. Thus, a defendant may “offset” the amount of restitution he or she must pay to the victim by handing over a greater portion of the fruits of their fraud.
Last week the Seventh Circuit joined a split over how to calculate the “offset value” for purposes of determining the amount of restitution a defendant must pay to the victim of mortgage fraud. See United States v. Robers, No. 10-3794, 2012 U.S. App. LEXIS 19273 (7th Cir. Sept. 14, 2012).
Writing for the panel, Judge Daniel Manion noted that
[t]he 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. 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.
After flagging the 3-3 circuit split, Judge Manion announced, “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.” The court offered the following explanation for its position on the issue:
"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.
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