Opinion ID: 808490
Heading Depth: 4
Heading Rank: 2

Heading: The Fifth Circuit

Text: The Smith decision has likewise served as the basis for other circuits holding that the offset value is the value of the collateral at the time of foreclosure. In United States v. Holley, 23 F.3d 902, 915 (5th Cir. 1994), the Fifth Circuit, like the Ninth Circuit, held that the offset value should be based on the fair market value on the date of foreclosure. In coming to this conclusion, the Fifth Circuit first stated that its decision in United States v. Reese, 998 F.2d 1275 (5th Cir. 1993), dictated the result. It noted that in Reese it had explained that “it would appear that the ‘property’ as to which [the savings and loan] might have suffered ‘damage to or loss or destruction of’ could only be loan proceeds funded in cash at the original closing of [the improperly extended] loan.” Id. at 1283. However, we also explained that when the real property that secures such a loan is deeded back to the financial institution, “the value of such property should constitute a partial return of the ‘cash loan proceeds.’ ” Id. at 1284. Holley, 23 F.3d at 915. But the court’s reasoning in Reese was limited to this statement: “Conceptually, it would seem to us that No. 10-3794 29 when a lender accepts conveyance of the se- cured property in lieu of foreclosure, the value of such property should constitute a partial return of the ‘cash loan proceeds.’ ” Reese, 998 F.2d at 1284. This reasoning ignores the fact that the victim accepted the collateral real estate, not in lieu of the cash proceeds, but in order to sell and recoup the cash proceeds. After citing the reasoning of Reese, the court in Holley then turned to Smith, stating: The Smith court held that the defendant “should receive credit against the restitution amount for the value of the collateral property as of the date title to the property was transferred” to the FSLIC’s successor. Id. at 625. The court reasoned that, as of that date, “the new owner had the power to dispose of the property and receive compensation.” Id. The Smith court concluded that the value of the returned property “should therefore be measured by what the financial institution would have received in a sale as of that date. Any reduction in value after [the defendant] lost title to the property stems from a decision by the new owners to hold on to the property.” Id. Holley, 23 F.3d at 915. Unlike the Ninth Circuit’s decision in Smith, the Fifth Circuit in Holley at least acknowledged the government’s argument “that the ‘property’ that was lost was [the bank’s] capital and that the return of [the real estate] to [the bank] represents only the return of the collateral for the 30 No. 10-3794 actual property involved in this case” and that it was not until that collateral was sold for cash that the victim regained its property. Id. But Holley did not provide any basis for ignoring this distinction, other than citing its previous decision in Reese. See id. And Reese merely concluded that there was no “conceptual” difference. Reese, 998 F.2d at 1284. However, as explained above, the two are not conceptually equivalent: cash is liquid, real estate is not; the collateral secured the cash loan—it was not the cash loan; and the victim had cash before the fraud and wanted cash back as its returned property. In short, we find the Fifth Circuit’s reasoning in Reese unpersuasive and thus its decision in Holley adds nothing to the analysis.