Facts: A borrower submits a fraudulent loan application to a lender and obtains a mortgage secured by a trust deed on the property. The borrower defaults on their mortgage payments and the lender nonjudicially forecloses, becoming the owner of the property. While the property is held in the lender’s REO inventory, real estate property values decline due to the national recession. The lender sells the property for less than what it was valued at when the lender foreclosed. The borrower is later convicted of fraud and is ordered to pay the lender restitution calculated as the amount loaned to the borrower minus the proceeds from the sale of the property.
Claim: The borrower seeks to lower the restitution amount, claiming the court incorrectly calculated the damages since the court was to value the property at the time it was foreclosed, not when it was resold, as its value at the time of foreclosure was higher than what the lender sold the property for and covered more of the lender’s losses.
Counter claim: The lender claims the restitution is to be calculated based on the money the lender receives from selling the property, and not the value of the property at the time it was foreclosed and taken by the lender.
Holding: The U.S. Supreme Court held the restitution to the lender is to be calculated based on the price the property received when it was sold, not its value on the date of foreclosure, since the restitution award is meant to restore the lender for the fraudulently-obtained mortgage, which is only fulfilled by actual money amounts received at the sale, not the previous value of the property on the date the lender foreclosed. [Robers v. United States (May 5, 2014)_US_]
Editor’s note — Real estate is by nature an illiquid asset. Thus, converting it to cash frequently takes time, subject to fluctuations in property values.