Opinion
Case No. 3:07-CR-80(1)
01-30-2014
UNITED STATES OF AMERICA, Plaintiff, v. DUMOND HENDERSON, Defendant.
JUDGE WALTER H. RICE
DECISION AND ENTRY CONCERNING VICTIM LOSSES FOR PURPOSES OF RESTITUTION; AMENDED JUDGMENT TO ISSUE ORDERING DEFENDANT HENDERSON TO PAY RESTITUTION IN THE AMOUNT OF $30,802.48 TO LIME FINANCIAL, AND $99,523.92 TO C-BASS, WITH RESTITUTION OWED TO C-BASS TO TAKE PRIORITY
I. Background and Procedural History
Defendants Dumond Henderson and Keith Channels pleaded guilty to Conspiracy to Commit Wire Fraud, in violation of 18 U.S.C. § 1349. In October of 2006, Henderson used Channels' personal identifiers to fraudulently obtain a $131,171.32 home loan from Lime Financial ("Lime"). Henderson arranged for the funds to be deposited into the bank account of a fraudulent title agency he had created. However, he never paid the seller for the house, and the mortgage was never recorded. Instead, Henderson transferred approximately $48,500.00 to a checking account held by Channels, and used the remaining funds for his personal benefit. The Government was able to seize $26,097.54 of the $48,500.00 from Channels' checking account.
In his plea agreement, Channels agreed to make complete and full restitution to all victims of his crime, specifically agreeing to pay Lime approximately $48,500.00. Doc. #29, ¶9. At Channels' sentencing hearing on April 17, 2008, in accordance with the plea agreement, the Court ordered Channels, jointly and severally with Henderson, to make restitution to Lime in the amount of $22,402.46, representing the balance between the $48,500.00 and the amount seized from Channels' checking account. Doc. #38. Channels was ordered to make payments of $200 per month toward the restitution, Doc. #46.
In his plea agreement, Henderson likewise agreed to make complete and full restitution to all victims of his crime, specifically agreeing to make restitution to Lime in the approximate amount of $131,171.32, equal to the original loan amount. Doc. #29. Prior to Henderson's sentencing hearing, the Government learned that there was a second potential victim, Litton Loan Services ("Litton"). Doc. #37. On February 22, 2007, Lime had sold the loan at issue to a company called C-BASS at a discounted rate. The loan was sold as part of a pool of 35 "scratch and dent" loans. Doc. #51-2, PagelD#204. Litton was the servicing agent for C-BASS.
At Henderson's sentencing hearing, held on June 26, 2008, the Court heard telephone testimony from representatives of Lime and Litton concerning their respective alleged losses. Lime maintained that it sold the loan, which it considered to be an impaired asset, to C-BASS for $99,523.92. Litton, however, maintained that the purchase price was $107,641.68. Tr. at 8, 19. The Court ordered Henderson to pay restitution but, due to the discrepancy concerning the purchase price of the loan, deferred for 60 days any determination concerning the specific amount of restitution owed each victim. The Judgment stated that an Amended Judgment would be entered once restitution was finally determined. Doc. #43.
On September 3, 2008, Litton submitted additional evidence concerning how it had calculated its $107,641.68 purchase price. Litton further argued that, because Lime had assigned all rights in the mortgage to C-BASS, Lime was not entitled to any restitution whatsoever. In the alternative, Litton argued that, because Lime had already received proceeds from the sale of the loan, while Litton was stuck with a mortgage that was unsecured by any collateral, Litton was entitled to full restitution before Lime received any. Doc. #50.
On December 1, 2008, Lime submitted to the Government its explanation of how it had calculated the $99,523.96 purchase price. On December 22, 2008, the Government notified the Court that the C-BASS loan was now being serviced by Home Servicing, LLC, of Baton Rouge, Louisiana, instead of Litton. The Government also submitted Lime's supplemental information to the Court, and recommended that the Court award restitution to both Lime and C-BASS. Doc. #51.
The Court took the matter under advisement. Additional status conferences were held on April 20, 2009, and on March 24, 2010. Unfortunately, at that point, the matter slipped through the cracks on the Court's docket. The Court apologizes profusely for the delay in finally resolving the matter of restitution. Since Defendant Henderson was already ordered to pay restitution, the delay does not deprive the Court of power to issue the final restitution order. See Do/an v. United States, 560 U.S. 605 (2010); United States v. Bogart, 576 F.3d 565 (6th Cir. 2009).
II. Analysis
The Mandatory Victim Restitution Act ("MVRA") requires the Court to order Defendants in this case to make restitution to the victims of their offense. 18 U.S.C. § 3663A(a)(1). "The basic rule is that the victim is entitled to be made whole." United States v. Yeung, 672 F.3d 594, 600-601 (9th Cir. 2012). A "victim" is defined by statute as "a person directly and proximately harmed as a result of the commission of [the] offense." 18 U.S.C. § 3663A(a)(2).
The Court finds that Lime and C-BASS are both "victims" entitled to restitution. Lime was directly and proximately harmed by Defendant's conduct because it had to sell the tainted loan at a discounted price. C-BASS was directly and proximately harmed by Defendant's conduct because it is stuck trying to collect on a loan that is not secured by any collateral. See Yeung, 672 F.3d at 605 (holding that loan purchaser was a "victim" under the MVRA because it acquired the loan not knowing that the borrower had fraudulently misrepresented his financial ability to repay the loan). C-BASS knew that the loan was part of a pool of "scratch and dent" loans. However, according to Chris Wyatt, Vice President of Litton, C-BASS was not aware that the loan had been procured by fraud. Wyatt Aff. ¶ 15; Doc. #50-1.
The Court notes that paragraph 89 of the Presentence Investigation Report also recommends that Defendant Henderson be ordered to pay $32,000.00 to Patrick Beckel, the seller of the property in question, for physical damage Defendant caused to that property during the short time he lived there. The plea agreement, however, is silent concerning this particular loss. In any event, the Court finds that Beckel is not a "victim," as that term is defined by statute. Any damage that Defendant caused to the property was the result of an intervening, superseding cause. The damage did not occur as a direct and proximate result of the wire fraud.
Litton/C-BASS argues that because Lime assigned its entire interest in the loan account to C-BASS, including "all payments of principal and interest and other recoveries on the Assets received after the related Cut-off Date," Ex. A to Wyatt Aff., Doc. #50-1, PagelD#188, Lime is not entitled to any restitution. This is incorrect. The MVRA requires the Court to order restitution for all persons directly and proximately harmed by a defendant's conduct. Given that Lime had to sell the loan at a discounted price, Lime is a victim entitled to be made whole. The fact that, in connection with that sale, Lime assigned its contractual right to collect future loan payments from Channels is irrelevant to a determination of whether Lime is entitled to criminal restitution.
In the alternative, Litton/C-BASS argues that Defendants should be ordered to make full restitution to C-BASS before Lime receives any funds. Section 3664(i) of Title 18 of United States Code allows the Court to provide "a different payment schedule for each victim based on the type and amount of each victim's loss and accounting for the economic circumstances of each victim." Litton/C-BASS maintains that because Lime has already received the proceeds from the sale of the loan, while C-BASS is left holding a worthless mortgage, restitution to C-BASS should be given priority. The Court agrees.
Although Lime and C-BASS are both victims, the Court finds that C-BASS is perhaps the more "innocent" victim of the two. True, Lime knew nothing of Defendants' conspiracy when it approved the loan application. It did what it could to cut its losses after the fact. Lime knew of the fraud when it sold the loan to C-BASS. Greg Womer of Lime testified at the sentencing hearing that Lime learned of the fraud in December of 2006, when Lime was served with a subpoena by the Government. Tr. at 11. Lime sold the loan to C-BASS on February 22, 2007, at a discount. He testified that Lime told C-BASS of the fraudulent nature of the loan before C-BASS purchased it. In particular, he testified that the bid indicated that "occupancy" and "cash to close" had been misrepresented. Tr. at 8, 12.
Chris Wyatt, Vice President of Litton, also testified at the sentencing hearing. He testified that, to the best of his knowledge, no one at C-BASS was aware of the fraudulent nature of the loan. C-BASS understood that the loan was secured by a piece of real property. Tr. at 15, 17. Wyatt also submitted an affidavit stating that C-BASS would not have purchased the loan had it known that it was procured by fraud. Wyatt Aff. ¶ 15.
The Court finds Wyatt's testimony to be credible. It is one thing to purchase a "scratch and dent" loan, which, although marred by certain misrepresentations, is probably still collectible, at least in part. However, no purchaser would knowingly pay nearly $100,000 to purchase a loan that was procured by fraud, and for which no mortgage was ever recorded. In the Court's view, it is highly doubtful that Lime disclosed the full extent of the fraud when it hid this particular loan in the pool of "scratch and dent" loans. In this respect, Lime has perhaps already received more than it deserved. For this reason, the Court finds that the restitution owed to C-BASS should take priority over the restitution owed to Lime. Therefore, rather than order pro rata restitution apportioned between the two victims, the Court orders that C-BASS be paid in full before Lime is paid anything.
The Court must next determine the amount of restitution owed to each victim. As a general rule, the victims are entitled to the value of the property. See 18 U.S.C. § 3663A(a)(3)(b)(1)(B). In this case, the "property" at issue is the loan "that has lost value due to the fraudulent conduct of the defendant." Yeung, 672 F.3d at 602.
The Court finds that Lime is entitled to the difference between the initial loan amount less any mortgage payments it received (thus, the unpaid principal balance), and the amount it received when it sold the loan, minus the $50.00 tax fee, which was not a "loss" but a standard charge. C-BASS is not entitled to the full outstanding unpaid balance of the loan. Rather, it is entitled only to the purchase price of the loan. Id. at 603-04 (holding that if the purchaser paid "less than the unpaid principal balance of the loan, it is not entitled to receive a windfall by receiving an award of the loan's full amount.").
The parties do not agree on the amount of the purchase price. Chris Wyatt maintains that C-BASS paid $ 107,641.68 for the loan $ 105,850.04 for the loan itself, plus $1,791.59 in accrued interest. The established procedure for determining the purchase price for each loan is set forth in a Master Purchase Agreement, dated November 4, 2004. Wyatt Aff. ¶ 5; Ex. A to Wyatt Aff. The alleged purchase price of $105,850.04 was supposedly set forth on "Schedule Two" of the "February 22, 2007, Term Sheet." Wyatt Aff. ¶¶ 7, 9. However, because neither "Schedule Two" nor the "February 22, 2007, Term Sheet" was attached to the affidavit, it is not clear how that amount was determined.
The Court notes that Wyatt's calculation appears to be off by five cents.
Lime maintains that the purchase price was $99,523.92, calculated as follows:
| Unpaid Principal Balance (UPB) at time of sale: | $130,376.44 |
| Less 15% discount for "scratch and dent" nature: | - 19,556.47 |
| Accrued Interest: | + 1,791.59 |
| Subtotal: | 112,611.56 |
| Tax Fee: | 50.00 |
| Subtotal: | 112,561.56 |
| Less 10% of UPB as "holdback fee": | - 13,037.60 |
| Total Purchase Price: |
It is not clear why this calculation is four cents more than the amount of restitution Lime claims it is owed.
This method of calculating the price that C-BASS paid for the loan is supported by several documents of record, including a February 21, 2007, letter from C-BASS to Lime, Doc. #51-2, PagelD#204. Other documents submitted to the Government by Lime indicate that the total proceeds from the sale of Channels' loan amounted to $99,523.92. Id. at PagelD##213, 215.
Notably, the 10% "holdback fee" of $13,037.60, which was to be given to Lime once C-BASS completed its due diligence of the file, does not appear to be factored into Wyatt's calculations, even though it appears to be undisputed that Lime never received this money. Although the holdback fee does not entirely account for the discrepancy in the purchase price, it does close the gap significantly.
The Court finds, by a preponderance of the evidence, that the purchase price of the loan was $99,523.92. Accordingly, C-BASS is entitled to restitution in the amount of $99,523.92. Lime is entitled to restitution in the amount of $30,802.48, calculated as follows: $130,376.44 (the unpaid principal balance), minus $99,523.92 in proceeds from the sale of the loan, minus the $50.00 tax fee, which was not a "loss" but a standard charge.
An Amended Judgment will be issued, ordering Henderson to pay restitution in the amount of $30,802.48 to Lime Financial, and $99,523.92 to C-BASS. Because Henderson played a significantly greater role in the conspiracy, he is severally liable for these amounts. As previously noted, C-BASS is entitled to full restitution before Lime is paid anything.
At the time of Channels' sentencing hearing, Lime was the only identified victim. Accordingly, the Court ordered that the $22,402.46 in restitution be paid solely to Lime. This represented the difference between the $48,500 Henderson gave to Channels and the $26,097.54 seized from Channels' checking account. Henderson was to be held jointly and severally liable for this amount. The Court understands that Channels has paid approximately $13,850.00 toward his restitution obligation, and that Henderson has paid approximately $1,690.00. The Court further understands that the $26,097.54 that was seized from Channels' checking account, and forfeited by him in Case No. 3:07-cv-327, was transferred to the Treasury Forfeiture Fund on July 23, 2008. Given that the Court reduced Channels' restitution obligation from $48,500 to $22,402.46, it was clearly the Court's intent that the money that was seized also be paid to the victim. The Court understands that none of the restitution paid by Defendants, nor the money seized from Channels' checking account, has yet been forwarded to Lime. The Court does not believe that it has authority to amend the Channels' Judgment at this late date to include C-BASS as an additional victim, or one whose entitlement to restitution takes priority over Lime's. The Court suggests that the U.S. Attorney convene a conference call among the victims, or request the Court to do so, in order to reach an equitable solution as to distribution.
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III. Conclusion
As set forth above, the Court finds that Lime Financial and C-BASS are both victims entitled to restitution under the MVRA. Henderson is severally liable to Lime Financial in the amount of $30,802.48, and to C-BASS in the amount of $99,523.92. C-BASS is entitled to full restitution before Lime is paid anything. An Amended Judgment will be issued accordingly.
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WALTER H. RICE
UNITED STATES DISTRICT JUDGE