Opinion ID: 173110
Heading Depth: 2
Heading Rank: 2

Heading: Calculation of Actual Loss

Text: Under U.S.S.G. § 2B1.1(b), a defendant's base offense level for a fraud conviction is increased according to the loss. The court should use the greater of actual or intended loss. U.S.S.G. § 2B1.1 cmt. n. 3(A). If there is a loss but it cannot reasonably be determined, the court may use gain that resulted from the offense as an alternative measure of loss. Id. cmt. n. 3(B). Based on the evidence presented at the sentencing hearings, the district court found that the actual loss attributable to Mr. James's conduct was $3,731,839. This increased his offense level by 18. See U.S.S.G. § 2B1.1(b)(1)(J) (18-level increase for loss between $2,500,001 and $7,000,000). On appeal, Mr. James contends that actual loss in this case cannot reasonably be determined, and that the district court should have considered his gain instead. [2] Using the $2,298,193 of gain reported in the plea agreement and the original PSR would have increased his offense level by only 16. See id. § 2B1.1(b)(1)(I) (16-level increase for loss between $1,000,001 and $2,500,000). In support of his contention, Mr. James argues that the district court did not consider that the original lenders sold the loans to successor lenders, and that the loss figure was not supported by any evidence regarding payments made on the loans. We review factual findings regarding calculation of loss under a clearly erroneous standard. United States v. Smith, 951 F.2d 1164, 1166 (10th Cir.1991). In this case, however, Mr. James challenges the methodology the district court used to calculate loss. This is a legal question we review de novo. See United States v. Lara, 956 F.2d 994, 998 (10th Cir.1992) (The question of what factors . . . the court [may] consider in computing the amount of a loss is a legal question that we review de novo.); United States v. Haddock, 12 F.3d 950, 961 (10th Cir.1994) ([W]e review de novo what may be included in computing loss.); see also United States v. Goss, 549 F.3d 1013, 1016 (5th Cir.2008) (methodology used in computing loss is reviewed de novo); United States v. Staples, 410 F.3d 484, 490 (8th Cir.2005) (same). `Actual loss' means the reasonably foreseeable pecuniary harm that resulted from the offense. U.S.S.G. § 2B1.1 cmt. n. 3(A)(i). The [sentencing] court need only make a reasonable estimate of the loss. Id. cmt. n. 3(C). In cases where the defendant has pledged collateral to secure a fraudulent loan, [a]ctual loss should be measured by the net value, not the gross value, of what was taken. Smith, 951 F.2d at 1167. This loss is calculated by subtracting the value of the collateralor, if the lender has foreclosed on and sold the collateral, the amount of the sales pricefrom the amount of the outstanding balance on the loan. See United States v. Swanson, 360 F.3d 1155, 1169 (10th Cir.2004) (stating that in fraudulent loan cases . . . the loss is the amount of the loan not repaid at the time the offense is discovered, reduced by the amount the lending institution has recovered (or can expect to recover) from any assets pledged to secure the loan); Haddock, 12 F.3d at 961 ([T]he net loss to a lender is the unpaid amount of the loans minus the value of the collateral at the time of sentencing.); Smith, 951 F.2d at 1167 ([I]f the fraud consists of an unequal exchange of property, the loss . . . consists only of the difference in value between what was given and what was obtained.). In this case, the district court subtracted the foreclosure sales prices of the properties from the amount of the original loans in order to calculate actual loss. But, as Mr. James emphasized below and on appeal, the original lenders were generally not the lenders who foreclosed on the properties. Rather, most of the original lenders sold the loans to successor lenders before the foreclosure sales. Thus, the successor lendersnot the original lendersreceived the proceeds from the foreclosure sales. Accordingly, to the extent any original lender sustained an actual loss, that loss is the difference between the outstanding balance on the original loan and what the lender received when it sold the loan. See Smith, 951 F.2d at 1167 ([T]he loss . . . consists only of the difference in value between what was given and what was obtained.). The foreclosure sales price is irrelevant to that computation because the original lender was not the recipient of those proceeds and because there is no evidence suggesting those figures were a reasonable estimate of what the original lenders received when they sold the loans to the successor lenders. Indeed, the PSRwhich was prepared with the investigative assistance of the governmentexplicitly recognized this reality when it noted that [t]he victim lenders . . . [are] the original lenders. In most cases, however, the loans were subsequently sold to other loan servicers and the actual loss was sustained by successor lenders. Nor is it reasonable in this case to subtract the foreclosure sales prices of the properties from the amount of the original loans in order to calculate the actual loss sustained by the successor lenders. As noted, actual loss should be measured by the net value of what was takenin other words, the difference in value between what was given and what was obtained. See Smith, 951 F.2d at 1167. The successor lenders' actual loss, then, is the difference between what they paid the original lenders for the loans (less principal repayments by borrowers, if any) and what they received for the properties at the foreclosure sales, plus reasonably foreseeable expenses relating to the foreclosure proceedings. Using the amount financed by the original lender as a starting point in this calculation is improper when there is no evidence suggesting that the loans were sold to the successor lenders for sums approximating the original loan amount. Moreover, in determining that the successor lenders were not victims under U.S.S.G. § 2B1.1(b)(2), the district court explicitly found that the losses of those entities does not constitute reasonably foreseeable pecuniary harm. . . . That finding precluded the district court from considering their losses as part of the actual loss calculation for purposes of § 2B1.1(b)(1). [3] See U.S.S.G. § 2B1.1 cmt. n. 3(A)(i) (`Actual loss' means the reasonably foreseeable pecuniary harm that resulted from the offense.). We recognize [t]he district court need not calculate actual or intended loss with exact precision[;] it need only make reasonable estimates. United States v. Galloway, 509 F.3d 1246, 1251 (10th Cir. 2007). But a loss estimate is reasonable only when it is calculated under a reasonable method. In this case, the district court's finding that the successor lenders did not sustain reasonably foreseeable pecuniary harm limited the court's actual loss calculation to the losses sustained by the original lenders only. [4] And on this record, subtracting the foreclosure sales prices from the original loan amounts is not a reasonable method of calculating the original lenders' actual loss. Those lenders never received the proceeds from the foreclosure sales, and there is no evidence that those figures are a reasonable estimate of what those lenders received when they sold the loans to the successor lenders; thus, the loss sustained by the original lenders could not, on this record, be calculated with reference to the foreclosure sales prices. We are aware that today's banking realitiesthe bundling of mortgages into securities, for examplemay make it difficult to identify precisely the proceeds a lender received for a specific mortgage loan. The Guidelines, however, contemplate such circumstances and thus permit a district court to estimate loss based on available information. U.S.S.G. § 2B1.1 cmt. n. 3(C) (emphasis added). It is not necessary for us to set forth an exhaustive list of the types of available information the court may use in a case in which the victim lender sells downstream a fraudulently obtained loan; nor do we suggest that it is always improper to estimate such a lender's loss based on the foreclosure price information provided to the district court in this case. It is enough to say that this particular record included no evidence to support an inference that the foreclosure sales prices were appropriate estimates of what the original lenders received when they sold the loans to the successor lenders. Thus, those figures could not be used to determine the original lenders' actual losses. [5] We therefore remand with instructions for the district court to recalculate the actual losses of the ten original lenders it identified as victims of Mr. James's conduct. See United States v. Kristl, 437 F.3d 1050, 1055 (10th Cir.2006) (a non-harmless error in determining the applicable Guidelines range warrants a remand for resentencing). Because the court previously found, however, that the successor lenders' losses were not reasonably foreseeable pecuniary harma finding that the government does not challenge in this appealthe court shall not include their losses, if any, for purposes of the § 2B1.1(b)(1) enhancement. If the district court finds that the original lenders have suffered an actual loss, but that the loss cannot reasonably be determined, it shall explain this finding, see Galloway, 509 F.3d at 1252, and shall use gain as an alternative measure of loss. In that case, we express no opinion on the appropriate calculation of gain. [6]