Restitution After a Mortgage Fraud Conviction: United States v. Ritchie

If you are convicted of lying in a mortgage transaction, you can be ordered to repay the full unpaid loan balance, even to a bank that took over the loan later. The Fourth Circuit decided two restitution questions in United States v. Ritchie on May 30, 2017:

1. The "categorical approach" does not decide whether the Mandatory Victims Restitution Act (MVRA) applies. Courts can look at the facts of the case.
2. A bank that took over a fraudulent loan can get restitution for the full unpaid balance, minus any money recovered, even if it acquired the loan for pennies on the dollar.

Restitution means paying back the victim's losses. The MVRA requires it for certain crimes, including "an offense against property" under Title 18. 18 U.S.C. § 3663A(c)(1)(A).

What happened

Timothy Ritchie was convicted of making a false statement in a matter within federal jurisdiction, under 18 U.S.C. § 1001(a)(2). He lied on a HUD-1 settlement statement when buying a home.

Countrywide lent about $2,445,102 for the purchase. Ritchie later defaulted, and the property sold at foreclosure for $1,106,000. Bank of America bought Countrywide after the loan was made, and the government argued that Bank of America was now the "victim" of Ritchie's fraud under the MVRA.

At sentencing, the judge imposed 12 months and one day in prison. The judge agreed with the government and ordered $1,385,444.83 in restitution to Bank of America, the difference between the loan and the sale price.

Can the court look at what actually happened?

The categorical approach is a method courts use to classify a crime. They look only at the legal elements of the offense, not what the person actually did.

Ritchie argued that "no element of 18 U.S.C. § 1001 requires that government property (or any other property) be involved in the 'matter' as to which the false statement is made." So, he said, § 1001 "categorically is not an 'offense against property'" under the MVRA, and restitution was improper.

The Fourth Circuit disagreed. It said the categorical approach applies to statutory language that refers to a generic crime "as generally committed." The MVRA's phrase "an offense against property under this title" does not do that. It has no list of generic crimes and no language limiting courts to the elements.

The court also compared the MVRA's other clause, which covers a "crime of violence, as defined in section 16." Section 16 does call for an elements-based approach. Congress used different wording for property offenses, which suggests it meant to cover a broader range.

Here is how the court put it:

As with any issue of statutory interpretation, 'we begin by analyzing [the MVRA's] text.' The Supreme Court has instructed us to apply the categorical approach to statutory language that, when "read naturally, . . . refers to a generic crime as generally committed." Nijhawan v. Holder, 557 U.S. 29, 34 (2009). Consistent with this premise, courts construe the sentence-enhancement provision of the Armed Career Criminal Act ("ACCA") defining a generic "violent felony" as, inter alia, a crime that "has as an element the use, attempted use, or threatened use of physical force," or "is burglary, arson, or extortion, or involves use of explosives," to require application of the elements-based categorical approach.

Here, we do not read the relevant text—"any offense . . . that is . . . an offense against property under [Title 18]"—to refer to a generic crime as generally committed. In that regard, we note that subsection (c)(1)(A)(ii) of the MVRA contains no language suggesting that courts look only to the elements of Title 18 statutory offenses, nor does it provide an illustrative list of property offenses that "must refer to generic crimes." See Nijhawan, 557 U.S. at 37 (approving application of categorical approach to 8 U.S.C. § 1101(a)(43)(A)'s list of the generic offenses of "murder, rape, or sexual abuse of a minor").

The structure of the statutory text also counsels against Ritchie's view. Subsection (c)(1)(A)(i) applies the MVRA to "a crime of violence, as defined in section 16," and, under 18 U.S.C. 16, we are required "to look to the elements and the nature of the offense of conviction, rather than to the particular facts relating to the crime." Leocal v. Ashcroft, 543 U.S. 1, 7 (2004). Subsection (c)(1)(A)(ii) contains no such modifying reference. We think this "contrasting terminology" shows that Congress intended subsection (c)(1)(A)(ii) "to cover a broader range of prior offenses" than those reached by subsection (c)(1)(A)(i).

The bank gets the full unpaid balance, not what it paid

Ritchie also argued that Bank of America should get only what it paid for his loan. Over a dissent, the court rejected that. It said the victim is entitled to the amount still owed on the fraudulently obtained loan, minus what was recovered when the property was sold. See 18 U.S.C. § 3663A(b)(1). In the court's words:

The proper restitution award due in the context of a fraudulent mortgage transaction is a relatively simple calculation. The "owner of the property" that was lost (i.e., the money lent), or the person "designated by the owner" to receive it, is entitled to a restitution award that is equivalent to the outstanding amount of the money that remains due under the fraudulently obtained loan. 18 U.S.C. § 3663A(b)(1)(A). And because the money that was lent to the borrower is the "property" under the MVRA, that amount necessarily takes into account any portion of the money that was "returned" to the owner or its designee when the collateral that secured the loan was sold.

The court acknowledged this conflicts with the Ninth Circuit's decision in United States v. Luis, 765 F.3d 1061 (9th Cir. 2014), and declined to follow it.

The sentence and restitution order were affirmed in all respects. United States v. Ritchie, No. 16-4036 (4th Cir. May 30, 2017).

What this means for you

In the Fourth Circuit, the restitution figure in a loan fraud case usually starts with the unpaid balance and subtracts what the lender recovered, such as the foreclosure sale price. Check both numbers in the presentence report (PSR, the report the probation office prepares before sentencing), and ask for proof of the sale price and any other recoveries. Other circuits may handle the purchase-price question differently, as the split with the Ninth Circuit shows.

Facing a federal sentence? Book a consultation to talk it through with Brandon Sample.