Opinion ID: 4315140
Heading Depth: 3
Heading Rank: 2

Heading: Loss Calculation Methodology: A Primer

Text: Before we begin our analysis, a loss calculation soliloquy should help us approach this issue trippingly on the tongue.17 Guidelines calculations for crimes including false statements on a mortgage loan application are ratcheted up according to, among other factors not relevant in Mayendía's case, the monetary loss attributable to the defendant's crime. U.S.S.G. § 2B1.1(b)(1). Loss can take one of two forms: actual loss or intended loss, and must be the larger of the two in each case. U.S.S.G. § 2B1.1 app. n.3(A).18 Actual loss, our relevant category here, is the reasonably foreseeable pecuniary harm that resulted from the offense. U.S.S.G. § 2B1.1 app. n.3(A)(i). Reasonably foreseeable pecuniary harm includes pecuniary harm that the defendant knew, or, under the circumstances, reasonably should have known, was a potential result of the offense. U.S.S.G. § 2B1.1 app. n.3(A)(iv). 17See William Shakespeare, Hamlet act 2, sc. 2. 18 Though not relevant in Mayendía's case, we note that in addition if either of these two loss pathways are too difficult to traverse, the district court can determine the gain that resulted from the offense as an alternatie measure of loss. U.S.S.G. § 2B1.1 app. n.3(B). - 16 - The guidelines provide the district court with broad discretion to determine this number. The district court need only make a reasonable estimate of the loss. U.S.S.G. § 2B1.1 app. n.3(C). Furthermore, the guidelines note that [t]he sentencing judge is in a unique position to assess the evidence and estimate the loss based on that evidence and thus is entitled to appropriate deference. Id. And when making that estimate, it need only be based on available information, taking into account, as appropriate and practicable under the circumstances, numerous specific and general factors, including the fair market value of the relevant property. Id. Fundamentally, loss calculations must reflect the seriousness of the crime and the relative culpability of the offender. United States v. Alphas, 785 F.3d 775, 783 (1st Cir. 2015). But, in seeming tension with section 2B1.1's general objective of achieving a reasonable estimate under the particular circumstances of the case, the district court's approach is cabined by a number of specific exceptions and inclusions it should consider when constructing its calculation methodology. One of those considerations, central to Mayendía's appeal, is application note 3(E), which says that [l]oss shall be reduced by, U.S.S.G. § 2B1.1 app. n.3(E) (emphasis added), among other things: [in] the case of a fraud involving a mortgage loan, if the collateral has not been disposed of by the time of sentencing, us[ing] the fair - 17 - market value of the collateral as of the date on which the guilt of the defendant has been established, whether by guilty plea, trial, or plea of nolo contendere. In such a case, there shall be a rebuttable presumption that the most recent tax assessment value of the collateral is a reasonable estimate of the fair market value. U.S.S.G. § 2B1.1 app. n.3(E)(iii) (application note 3(E)(iii)). Mayendía is not the first defendant in our circuit to require a district court to do the math of mortgages. In a prior case affirming a district court's methodology to calculate loss from a crime subject to U.S.S.G. § 2B1.1 involving a mortgage loan and a serial mortgage fraudster who used straw purchasers to flip properties, we held that actual loss usually can be 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. United States v. Appolon, 695 F.3d 44, 67 (1st Cir. 2012). After Appolon, we affirmed the application of this formula by other district courts. See Cox, 851 F.3d at 124-25; Foley, 783 F.3d at 23-24 (affirming use of mortgage principal as baseline for actual loss where omissions about down payments implie[d] Foley's awareness that the lenders would not have advanced the funds to borrowers with no skin in the proverbial game who presented a greater risk of default). - 18 - The preference for this loan amount minus fair market value of collateral methodology makes a great deal of sense. When a bank is the victim of a false statement or fraud related to a mortgage loan, the bank has been induced to issue a loan it would not otherwise have issued, and thus has lost the value of the loan minus whatever it can recoup from the sale of the collateral, or has already recovered through reduction of the loan principal. See, e.g., Foley, 783 F.3d at 23-25 (discussing how, under the Appolon approach, defendant could reduce actual loss by introducing actual figures for fair market value of collateral and principal repayments). By contrast, down payments will often fail to accurately capture the victim-bank's loss. As a conceptual matter, because a down payment is never sent to the bank, but rather to the seller, its only value to the bank is as criteria to help in determining whether to issue a mortgage loan. See United States v. Brandon, 17 F.3d 409, 427 n.15 (1st Cir. 1994) (explaining that bank fraud statute was satisfied because defendants' down payment scheme victimized [the bank] because it devalued the mortgages that the bank was providing, and had the bank known that no down payments had been made, the bank would have refused to provide those mortgages). And as a practical matter, at least in cases analogous to Appolon or its progeny where application note 3(E)(iii) is applicable, because the down payment is a static number, and fails - 19 - to accurately capture the particular market and fact-based circumstances that might mitigate or aggravate a bank's losses, such as a fluctuation in housing prices or loan principal repayments, the district court's decision to adopt one approach over the other can have material effects on the guideline range.19 For these reasons, absent some rationale by the district court supported by factual or evidentiary circumstances in a particular case involving a mortgage loan, using down payments as the lodestar 19 We explain by way of an example and, apologizing in advance, some judicial arithmetic. Take Count Two, the count of conviction. As we described before, Mayendía admitted in pleading guilty to Count Two that his father received a mortgage for $140,000, having stated to the bank that he had made a $46,481.60 down payment on that property. According to data from the Federal Housing Finance Agency, we can estimate that from the time Mayendía's father executed the mortgage related to Count Two (4Q 2008) and when he pled guilty (3Q 2016), housing prices in Puerto Rico fell by approximately 13.47%. See Federal Housing Finance Agency, AllTransactions House Price Index for P.R., available at www.fhfa.gov/DataTools/Downloads/Documents/HPI/HPI_AT_pr.xls. Based on an approximate total cost for the property of $175,000 when it was purchased in 2008, we estimate that the value of the property when Mayendía pled guilty in 2016 was about $151,427. Other sources have estimated a 44.5% drop in Puerto Rico housing prices since 2010. See Zillow, Puerto Rico Home Prices & Values January 2010-April 2018, available at www.zillow.com/pr/homevalues/. This sharper downturn in prices would result in an approximate value of $97,125. Thus, depending on the bank's actual posture given market fluctuations, a loan-amount-based approach that considers value of the collateral would result in an offenselevel increase of between zero and six levels, adjusting depending on how much value the bank can recoup from foreclosure sale, see U.S.S.G. § 2B1.1(b)(1)(A), (D); while on the other hand, the downpayment-based approach results in a static six-level increase, even if the bank has lost no money, or has even turned a profit from the foreclosure. See U.S.S.G. § 2B1.1(b)(1)(D). - 20 - for the calculation of actual loss runs the risk of failing to reasonably estimate the loss. Marry, this is the short and the long of it.20 We now turn to the particulars of Mayendía's appeal.