FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

PETER GREGORY MORRIS,

Defendant-Appellant.

No. 12-50302

D.C. No.

5:11-cr-00090-VAP-1

OPINION

Appeal from the United States District Court

for the Central District of California

Virginia A. Phillips, District Judge, Presiding

Argued and Submitted

January 8, 2014—Pasadena, California

Filed March 13, 2014

Before: Alex Kozinski, Chief Judge, and Stephen Reinhardt

and Richard R. Clifton, Circuit Judges.

Opinion by Judge Reinhardt
2 UNITED STATES V. MORRIS

SUMMARY*

Criminal Law

The panel affirmed a sentence in a mortgage fraud case in

which the defendant contended that the district court erred in

calculating the banks’ loss under the Sentencing Guidelines.

The panel held that, in a mortgage fraud case, loss under

U.S.S.G. § 2B1.1(b) is calculated in two steps. The first step

is to calculate the greater of actual or intended loss, where

actual loss is the reasonably foreseeable pecuniary harm from

the fraud, which will almost always be the entire value of the

principal of the loan. The second step is to apply the “credits

against loss” provision and deduct from the initial measure of

loss any amount recovered or recoverable by the creditor

from the sale of the collateral, whether or not the value of the

collateral was foreseeable.

COUNSEL

Sean K. Kennedy, Federal Public Defender, and Michael

Tanaka (argued), Deputy Federal Public Defender, Los

Angeles, California, for Defendant-Appellant.

André Birotte Jr., United States Attorney, Antoine F.Raphael

and Joseph B. Widman (argued), Assistant United States

Attorneys, Riverside, California, for Plaintiff-Appellee.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
UNITED STATES V. MORRIS 3

OPINION

REINHARDT, Circuit Judge:

In 2007, Peter Morris applied for three loans from three

financial institutions (Washington Mutual, Lehman Brothers,

and Bank of America) to purchase three properties, all located

at “Sonic Court” in Riverside, California. In the loan

applications, Morris claimed securities and assets that he did

not own, employment he did not have, and income he did not

earn. He falsely stated that he was unmarried, was in the

process of selling a different house, and was not obligated to

pay child support. He supplied the three banks with false

documents to substantiate these false statements. He also

withheld information—for example, he did not tell any of the

banks that he was applying for loans from the other two. All

three banks approved Morris’s loan applications, and Morris

purchased the three properties shortly afterward. When

Morris made only one mortgage payment, two of the three

banks foreclosed on their loans and sold the properties at a

loss. Morris sold the remaining property in a short sale, at a

loss to the third bank.

In 2011, in connection with these fraudulently obtained

loans, Morris pleaded guilty to wire fraud, 18 U.S.C. § 1343,

and making a false statement on a loan application, 18 U.S.C.

§ 1014. The district court sentenced Morris to 63 months

imprisonment. In choosing this sentence, the district court

began with a Sentencing Guidelines range of 57 to 71

months, which reflected a 16-level increase to Morris’s base

offense level based on the district court’s calculation that the

banks had suffered a loss of $1,033,500. A lesser loss would

have resulted in a lower Guideline range. Morris appeals his

sentence.
4 UNITED STATES V. MORRIS

I.

Morris contends that the district court erred in calculating

the banks’ loss under the Sentencing Guidelines. Morris’s

Guideline sentencing range was calculated using U.S.S.G.

§ 2B1.1, which applies to offenses involving fraud or deceit.

Under § 2B1.1, a defendant’s base offense level is increased

according to the amount of loss caused by the offense, where

the initial measure of “loss” is the greater of actual or

intended loss. U.S.S.G. § 2B1.1(b)(1); id. cmt. n.3(A).

Because Morris does not make any argument as to what he

“intended” the banks to lose, actual loss is the appropriate

initial measure here. “Actual loss” is “the reasonably

foreseeable pecuniary harm that resulted from the offense.”

Id. cmt. n.3(A)(i). “Reasonably foreseeable pecuniary harm”

means “pecuniary harm that the defendant knew or, under the

circumstances, reasonably should have known, was a

potential result of the offense.” Id. cmt. n.3(A)(iv). Relying

on this “reasonably foreseeable” language, Morris argues that

the district court should have calculated loss as the value of

the loans less the reasonably foreseeable value of the

properties at the time the loans were obtained. He contends

further that the reasonably foreseeable value at the time the

loans were obtained was considerably greater than the actual

value of the properties at the time they were sold because the

drastic housing market downturn of 2008–2009 was not

foreseeable.

The difficulty with Morris’s argument is that the

Sentencing Guidelines explicitly dictate how to measure loss

in mortgage fraud cases that involve collateral. In such cases,

the “credits against loss” provision mandates that the initial

measure of loss (actual or intended loss) be reduced by “the

amount the victim has recovered at the time of sentencing
UNITED STATES V. MORRIS 5

from disposition of the collateral” or, if the collateral has not

been disposed of at that time, the fair market value of the

collateral as of the date of conviction. Id. cmt. n.3(E)(ii)–(iii).

Morris’s proposal for calculating loss conflicts with this

provision.

We adopt the two-step approach first articulated by the

Eastern District of Virginia, and subsequently adopted by the

Second, Sixth, and Tenth Circuits. In calculating loss in

mortgage fraud cases, these Circuits hold that the first step is

to calculate the greater of actual or intended loss, where

actual loss is the reasonably foreseeable pecuniary harm from

the fraud. This amount will almost always be the entire value

of the principal of the loan, as it is reasonably foreseeable to

an unqualified borrower that the entire amount of a

fraudulently obtained loan may be lost. The second step is to

apply the “credits against loss” provision and deduct from the

initial measure of loss any amount recovered or recoverable

by the creditor from the sale of the collateral. This second

calculation is made without any consideration of reasonable

foreseeability. See United States v. Crowe, 735 F.3d 1229,

1236–41 (10th Cir. 2013); United States v. Wendlandt,

714 F.3d 388, 393–94 (6th Cir. 2013); United States v. Turk,

626 F.3d 743, 748–51 (2d Cir. 2010); United States v.

Mallory, 709 F. Supp. 2d 455, 457–60 (E.D. Va. 2010),

aff’d., 461 Fed. Appx. 352, 361 (4th Cir. 2012)

(unpublished).1 The resulting amount is the final loss amount.

 

1

 In so holding, we join the Second Circuit in rejecting the only case to

the contrary, United States v. Parish, 565 F.3d 528, 535 (8th Cir. 2009).

We agree with the Second Circuit that the Eighth Circuit’s reasoning in

Parish is contrary to the plain language of the Sentencing Guidelines

because “it conflates the initial calculation of loss (where foreseeability is

a consideration) with the credits against loss available at sentencing

(where it is not).” Turk, 626 F.3d at 751.
6 UNITED STATES V. MORRIS

Such an approach is not only dictated by the plain language

of the Guidelines and their accompanying commentary, but

also “necessary to ensure that defendants who fraudulently

induce financial institutions to assume the risk of lending to

an unqualified borrower are responsible for the natural

consequences of their fraudulent conduct,” no more, no less.

Mallory, 709 F. Supp. 2d at 459; see also Turk, 626 F.3d at

750 (“To accept [the defendant’s] argument would be to

encourage would-be fraudsters to roll the dice on the chips of

others, assuming all of the upside benefit and little of the

downside risk.”).

II.

In conclusion, we hold that, in a mortgage fraud case, loss

under U.S.S.G. § 2B1.1(b) is calculated in two steps. The first

step—calculating actual or intended loss—allows for a

reasonable foreseeability analysis, although the actual loss

generally consists of the entire principal of the fraudulently

obtained loan. The second step—crediting against the actual

or intended loss the value of any collateral recovered or

recoverable—does not permit a foreseeability analysis.

Rather, the value of the collateral is credited against the

amount of the loss calculated at the first step, whether or not

the value of the collateral was foreseeable. Because the

district court followed this rule in calculating the loss

attributable to Morris as $1,033,500, we affirm his sentence.

AFFIRMED.