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Mortgage Restitution Case Heads to High Court

WASHINGTON (CN) - The Supreme Court agreed Monday to determine how a mortgage fraudster must repay the lender and insurer he cheated.

Benjamin Robers had been ordered to make the $218,900 in restitution and serve three years' probation after pleading guilty to a wire fraud conspiracy count.

Federal prosecutors in Wisconsin had found that Robers acted as a straw buyer in a mortgage scheme by inflating his income on mortgage documents he signed.

"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 that he would live in the mortgaged properties as his primary residence and make loan payments, but the loans went into default and the property into foreclosure, the panel found.

Under the Mandatory Victims Restitution Act of 1996, Robers had been ordered to make restitution to the victims of the scheme - in this case, a mortgage company and a mortgage insurance company that paid a claim on one of the defaulted loans.

Robers had tried to reduce the amount owed by calculating "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 court noted.

The government meanwhile pushed to determine the value "based on the eventual cash proceeds recouped following the sale of the collateral real estate."

In siding with the government's approach, the appellate panel noted that the 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," Manion wrote. "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."

In siding with the latter trio, Manion noted that "the property originally stolen was cash."

"Some amount of cash is the only way part of the property can be returned," he added. "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."

Later, the ruling states: "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."

The court also struck attorneys' fees.

In granting Robers certiorari Monday, the Supreme Court followed its custom of not giving any comment. It did grant the petitioner leave to proceed in forma pauperis.

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