Toby Wayne Goss, Hinds County, Mississippi, having been convicted for mortgage-lending fraud, appealed his sentence contesting the loss calculation used in determining his sentencing range. At issue is whether, when computing that range, the fair market value of the collateral for each of the home-mortgage loans involved in the scheme should have been credited against the loss to the victim. Applying a bright-line rule, the district court, except for Goss' loan, did not permit such deduction. The appellate court affirmed his sentence in part, and vacated and remanded in part.

As previously reported by Mortgage Fraud Blog, from about 1999 to 2002, Goss, a mortgage broker, conspired with others to commit mail and wire fraud by preparing and submitting false documents to induce lenders to make loans totaling over $2 million to 35 borrowers who may not have been qualified for them otherwise. Goss and his co-conspirators created false verifications of deposit and rent, IRS W-2 forms, and Social Security benefit letters and provided them to lenders to obtain the mortgages.

Additionally, they conspired to launder money by converting some of the mortgage-loan proceeds for their own use and benefit. An unindicted co-conspirator issued checks to fictitious creditors for some of the fraudulently obtained loans and forwarded them to Goss. Goss also received mortgage-broker fees for each fraudulently obtained loan.

Goss was indicted on 20 counts of fraud in the mortgage-lending process. He pled guilty to counts one through 19 in March 2006.

Goss was sentenced under the 2001 version of the Sentencing Guidelines. Under Guideline § 2B1.1, the advisory sentencing-range calculation is dependent upon the amount of financial loss to the victims (here, the lenders). The calculated loss is to be the greater of actual or intended loss. U.S.S.G. § 2B1.1, app. n.2(A) (2001) ("Application Note 3(A)" in the current version of the guidelines).

On October 20, 2006, well in advance of the August 2007 sentencing hearing, the district court granted the Government's oral motion for the court to rule on issues regarding the appropriate method for calculating Goss' sentence. The Government asserted, among other things, that the intended loss was more than the actual loss; and, for the intended loss, the court should use the full value of the subject loans, excepting for Goss' loan, rather than deduct the value of the collateral.

For Goss' sentencing, the Government contended in district court that the precedent recognizes that, when a "defendant has no ownership interest in or control over" collateral, the amount of the collateral need not be subtracted from the loan amount. Goss countered arguing that his situation was different from the precedent because the precedent cases involved mobile homes, a type of collateral that is movable and depreciates quickly; on the other hand, the loans linked to Goss involved secure, immovable real property, known to appreciate in value; even if a borrower were to default, the lender would still own the collateral; and, in such a situation, the sentencing guidelines provided clear direction, stating that in a case involving collateral pledged or otherwise provided by the defendant, loss shall be reduced by the fair market value of the collateral at the time of sentencing. U.S.S.G. § 2B1.1 app. n.2(E)(2001).

Goss asserted that the loan amount represented neither actual nor intended loss; the intended loss was zero; and, as such, an actual-loss calculation should be employed. Therefore, Goss argued that the correct valuation would be to subtract the collateral amount from the value of the loans and hold the difference to be the actual loss. And, according to Goss, because most of the loans were over-collateralized, the actual loss would ultimately be only the broker fees and improper payments Goss received.

At a hearing in July 2007, both sides urged their positions on the appropriate method of calculating loss amount. Afterward, the district court rejected Goss' position and agreed with the Government that the intended loss was the full value of the loans, except for Goss' personal loan.

On 24 August 2007, Goss was sentenced to 57 months imprisonment as to each of counts one through 19, to run concurrently.

The appellate court reasoned that although there was neither evidence that Goss intended to cause the loss of the loans, nor evidence of his intent that they be repaid, the court could not agree that, as in the precedent mobile home case, Goss was so consciously indifferent or reckless about the repayment of the loans as to impute to him the intention that the lenders should not recoup their loans, whether by payment from the borrowers or through recovering the collateral in the event of default. The court's determination rests largely on the direction provided by the guidelines' commentary, as well as the common-sense notion that, generally, the value of real, immovable property will be recoverable should the owner default.

Along this line, the court noted that, as was the precedent case, Goss did not have control over the repayment of these loans to third parties. Nevertheless, the appellate court found that factor to be less important when determining the appropriate loss calculation in a case involving immovable real property, because part, if not all, of the loan value was more likely recoverable. Accordingly, in this instance, the court found that actual loss (vice intended loss) was the appropriate method of calculation.

Therefore, the appellate court affirmed in part and reversed and remanded in part, Goss' sentence.