There he goes again, but this time he’s trying to stretch the rhetoric so that it will eventually include pretty much everybody on the face of the earth. Who? My favorite victims rights advocate, Paul Cassell, who posts at VC about his latest foray into spreading the victimhood in the case of mortgage banker mutt, Phillip Coon.
Coon, a vice-president at Coast Bank, came up with a scheme to split one point of a mortgage origination fee between himself and the mortgage broker who sold the residential real estate loans. Former District Court Judge turned Utah Lawprof Cassell argues that the homeowners who paid the point are victims, and therefore entitled to a seat at the table.
The borrowers’ petition arises out of a plan by Coon to “skim points” off of residential mortgage loans in Florida from 2004–07. On November 5, 2008, Coon pled guilty to the scheme in U.S. District Court in Tampa. A group of 112 borrowers of these loans then filed a motion with Judge Kovachevich to be recognized as “victims” of his crime of conspiracy because they had to pay extra on their mortgages because of the crime. Judge Kovachevich denied the motion because the government’s charges only specifically listed Coast Bank, Coon’s employer, as the victim of the crime.
What’s fascinating is how the argument relies on a twist of the facts to create victimhood. You see, the borrowers agreed to pay two points on their loans, paid their points (either up front or by inclusion within the loan) and got their check. Paul argues that had there been no scheme, the borrowers would have paid one point less. And so he filed a petition for mandamus in the 11th Circuit.
In the petition filed yesterday, I explain that the borrowers suffered financial harms because they became legally obligated to pay the point that Coon skimmed off the loan and had to pay interest on the point. The petition cites documents showing that Coon received more than $1.1 million from his crime, which he used to buy overseas vacations, fine wine, expensive jewelry, a $20,000 piano, and other luxury items. The petition states that “while Coon was enjoying the high life on his ill-gotten gains, the borrowers were all paying interest on the money financing it.” The petition seeks restitution for the borrowers.
What Coon did with his ill-gotten gains has zero bearing on who the victim is, and its inclusion in his argument is an obvious effort to whip up hard feelings. It’s not that Coon doesn’t deserve hard feelings, but that there remains no logical connection between the hard feelings and Paul’s argument. But when it comes to victims, logic apparently plays no role. It’s all about the sympathy factor.
Coon should pay restitution, but to the appropriate victim of his crime, Coast Bank. It was Coast’s half point that he stole, not the borrowers. They received the deal they agreed to, and suffered no loss from their expectations. Coast Bank, on the other hand, was entitled to his honest service, and was denied it (not to mention their half point).
The danger of this argument is its implications for the future, given the rosy future for mortgage-related prosecutions going forward.
This could be a nationally significant case that will set the precedent for whether people who harmed by financial crimes have rights in the process. In my view, the borrowers here lost real money as a result of Coon’s crime – they should have their rights as crime victims respected.
If the borrowers are allowed to assume the status of victims, given the political happy meal offered by the CVRA as well as the new Rule 60 of the Federal Rules of Criminal Procedure, there will be no stopping borrowers from involvement in essentially every mortgage related case, even when they received everything they agreed to.
Applying a theoretical model, where everything that happens with regard to a mortgage ultimately is paid for by a borrower somewhere, there is no conceptual ledge to prevent borrowers (and consider the number we’re talking about) from intervening in a prosecution. But by the same theoretical extension, we are all “borrowers” and all victims. After all, the APR of residential mortgages moved in lockstep from bank to bank, meaning that one bank’s increase in points allowed others to do the same, meaning that all borrowers paid more than they theoretically should/could have but for the crime. Do we all get a piece of the pie?
However, “but for” arguments such as this are purely speculative. Banks increase points because they can, and because they are in the business of obtaining the best return on their investment. As Coast Bank could get another point on their loans from otherwise satisfied borrowers, then there was no harm. Similarly, if the borrowers were unhappy with the terms of the loan, they could have called the next bank on the list. And if the next bank on the list also bumped the points up one because Coast Bank did, then ever borrower from every bank suffered the same theoretical consequence of the crime. So either we’re all victims, or none.
One thing remains unclear to me, which is that Doug Berman at Sentencing Law & Policy also posted about this matter, and offered this:
I am pleased to see from this post at The Volokh Conspiracy that Professor Paul Cassell is continuing his important efforts to get district and circuit courts to give serious effect to the federal Crime Victims’ Rights Act.
Given Doug’s concern for doctrinal purity in sentencing, I can’t understand why, when it comes to the “victims’ rights” issue and CVRA, sympathy for the victims, even when they aren’t actually victims, should undermine the basic structure of the adversary process of the criminal justice system and the rights of defendants. I’ve discussed many times and many ways why victims have no place in the well in the criminal justice system. Yes, they’re sympathetic. No, they don’t get to have a third table in the courtroom.
I would sincerely like to understand how Doug rationalizes his views on fair and appropriate sentencing in general with his support of victims’ rights, which seems so antithetical to his concerns about the lack of fairness and proportionality in sentencing. There is no insular group whose involvement would serve no purpose beyond a blatant appeal to visceral vengeance than victims. I don’t get it.
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SHG
I am Paul Cassell’s co-counsel on the case. Our firm has been representing over 200 Coast Bank borrowers in various venues for the last two years. I wish to clarify the pertinent facts.
The loan origination fees in question were paid to the mortgage broker not the bank. The co-conspirator, Miller, was the principal of the mortgage broker. Thus, Coon and Miller did not deprive the bank of any fees.
The borrowers were primarily investors scattered around the country and these closings were “mailaways.” Most had no idea what a typical loan origination fee
would be for this type of transaction in Florida. Coon and Miller admitted in their plea agreements that the typical loan origination fee for this type of transaction was one point, not the two to two and a quarter points which were charged to the investors (there are some primary and secondary residence purchasers among the borrowers being represented).
The main builder recruited for the scheme by Coon and Miller was CCI. CCI defaulted on 482 home building contracts under this program and went bankrupt, leaving the investors with
mortgage balances far in excess of the value of the construction in place.
Coast Bank, and its successor First Bank, did not forgive that portion of the investor’s mortgages associated with the skimmed points. Quite the contrary. Coast Bank and its successor First Bank have accepted payoffs including the skimmed points plus interest, have secured foreclosure judgments including the skimmed points plus interest and are seeking deficiency judgments including the skimmed points plus interest.
Declaring Coast and not the borrowers the victim of the crime under these circumstances is astonishing. The fact that Coast Bank is now defunct makes such a declaration even the more peculiar.
I understand these to be the facts as you would argue them, but find myself in doubt of certain aspects. If Coon upped the points by one, then that point collected belonged to his employer, Coast Bank. The bank was deprived of the point. The borrowers knowingly agreed to pay it. That you claim the borrowers had no idea what a “loan origination fee” would be is no one’s fault but their own. It’s disingenuous to claim that at all, and particularly so since they had a full opportunity to ascertain what it was and chose to pay it. No one forced them to take a mortgage.
As for the builder’s default and bankruptcy, that has nothing to do with the mortgage. This is a red herring argument of no consequence.
As for Coast Bank, it lent the money (as agreed). Why would it forgive the point? If the borrowers had an action against the bank (which they obviously don’t), then they should pursue it. But there is no reason for the bank to pay back the point because their employee skimmed it. There’s no nexus whatsoever.
Aside from the issue with the builder, which would be the same for anyone contracting with a builder, you’ve suggested no harm to the borrowers at all. With the builder, the harm has nothing to do with the mortgage or the crime. The gist of your argument is pure, unadulterated sympathy for the borrowers. While they may well be generally sympathetic, you’ve offered nothing to suggest they’re victims of Coon’s crime. Had they been, they should receive restitution. They simply aren’t.
Again, the point overcharge was paid to the mortgage broker not the bank. The bank got its bank fees at the closing. It lost nothing from the mortgage broker’s overcharge. Coon and Miller split the overcharge after it was in the possession of the mortgage broker.
If it is your position that the point overcharge that Coon shared with Miller
should have gone to the bank because Coon was their employee, that payment by definition would have made the bank complicit in the scheme.
The borrowers were not in the position to negotiate the loan origination fees. If they wanted in the deal, they had to pay those fees. I can tell you that there are prosecutions going on all over the country involving overcharges on loan origination fees where the borrowers are clearly identified as the victims. Is it your position that these prosecutions should fail because the borrowers should have known better than to have paid excessive fees?
You say finally that it was of no consequence that the builder partner in the scheme defaulted on the contracts. This was the builder that Coon and Miller qualifed and approved to provide lots and houses. This is the builder who Coast Bank continued to fund well after it was apparent that he could not complete the homes. How the acts of this third conspirator in the scheme are not relevant to the determination of who is the victim in this case is beyond me.
No need to repeat arguments. They are no more persuasive by repetition, and I think you did an admirable job the first time, given the limits you have to work with. The borrowers agreed to the loan with 2 points. They got the loan with 2 points. Should the buyers have known better then to pay excessive fees? Yes. Of course they should. Stupidity (or perhaps lazyness?) doesn’t entitle anyone to extra rights.
If the builder was a fraud, then seek restitution when the government prosecutes the builder, assuming any particular person suffered direct harm from the unlawful conduct. They aren’t going after the builder? Go yell at the US Attorney. You don’t become a “victim” because you can’t find somebody better to go after.
I realize that you believe in your argument, and I don’t suggest that it’s absurd or ridiculous. Just that’s it wrong and dangerous to the criminal justice system. That you are unable to understand why every theoretical consequential “victim” shouldn’t gain CVRA rights through the criminal justice system is very clear. Your focus is on a recovery in your case, rather than a broader view of the damage it produces for the criminal justice system as a whole. No need to emphasize it.
This problem arises whenever complainants are not alleged in the charging instrument. For instance, when the government fails to charge criminal conduct because, either it is cumbersome or the conduct can’t be proven beyond a reasonable doubt, or it would make no material sentencing difference. The only workable rule is to exclude the complainants not alleged.
The answer is, prosecutor plead it if you can prove it. Otherwise complainant, sue.
That’s the heart of the problem, Jig. The defendant has to make restitution, and doesn’t really care who the money goes to. In fact, it’s better going to the borrowers (in this instance) than the Bank since they’re real people and the banks is, well, a bank.
But it’s the CVRA, and the intrusion of the victims as an intervening party in a criminal proceeding, that makes me oppose this mandamus. Today it’s about who receives the restitution, but the argument that allows that will allow the next group of “victims” extensive and, in my view, terribly inappropriate and disruptive rights, in the process. Consider FRCrimP 60 implications of who is defined as the “victim”.
This “victims’ rights” movement creates its own problems for victims, and forces fights in areas where no one else might really care. But ultimately, the only two parties to a criminal proceeding is the defendant and prosecution, and victims, if any, cannot be an entity independent of the prosecution without disastrous consequences for the adversary system and defendant’s rights.
There was no evidentiary impediment to charging Coon with defrauding the borrowers. However, this would have been inconvenient for Coon because of the possible accentuation of his sentence under the sentencing guidelines (multiple victims).
The government wanted to get another prosecution out of the way and announce via press release that another mortgage fraud culprit had been taken down, so they went along with Coon’s plan to be charged with and plea to a crime with only a single victim (the bank).
Coon and Miller, the co-conspirator, have agreed to provide restitution of $3 million dollars (the fruits of the crime). The FBI says that this is all they have, leaving nothing for the victim borrowers to collect in civil proceedings.
Ironically, the bank is defunct. If the borrowers’ rights to restitution are not recognized, will the money revert to the government as a forfeiture. Was this another reason why the government decided to buy into Coon’s charge and plea plan?
I understand that the focus of the rest of the posts is to protect the rights of criminal defendants. However, consider the downside of plea agreements negotiated without the input of victims
So the government was in cahoots with Coon to screw the borrowers out of their rightful restitution? Your ship is rapidly sinking.
I see that part of the problem here is that you either do not recognize, or do not accept, the premise that the criminal justice system does not exist for the benefit of “victims”. It exists for the protection of society, not individuals. I realize that this is foreign to your perspective, but that’s why individuals don’t get to prosecute anyone. Bring a civil suit on behalf of your clients if you want, but don’t ask the criminal justice system to pay your clients, or you. It does not exist for them any more than it exists for everyone.
Hmmm,respectfully, it seems that you are the one who does not accept nor recognize that Congress has acted and under the CVRA the victims now do have a stake.
I get it that you believe the CVRA to be a detestable piece of legislation, but it is now the law and the victims’ ship is sailing on.
You make a very good point here. That said, I will continue to argue that this is fundamentally wrong, destructive to the criminal justice system, and political ploy to be stopped wherever possible.
I agree with SHG.
Coast Bank IF anyone is the victim. The people who took out the loans read the contract with their attorney and signed it.
Case closed.
I however will go as far as to say that there are no victims. The bank agreed and that is that. People are overpaid for their services all the time.
Take a good look a Paulson and the Goldman Sachs years. 8% growth over 8 years and gets 750 million dollars.
Or maybe we should put Barney Frank in jail…
Fannie and Freddie
Under your theory, other than for outright theft, there would be no victims of any financial crime founded upon fraud. This seems extreme. If your secured a mortgage and your banker and mortgage broker charged you fees above market and kept the fees for themselves I think that you would be among the first in line to claim victim status and want those overcharged fees back in restitution.
Then again, perhaps you are someone who
gets ripped off and merely sluffs it off as a lesson learned. No disrespect intended.
Alan, there is a “reply to this” button beneath each comment. By using this button, it would save you from appearing to talk to yourself.
As for this comment, we try to avoid use of baseless assumptions about people you don’t know, such as “I think that you would be among the first in line to claim victim status,” or in the alternative, “perhaps you are someone who gets ripped off and merely sluffs it off as a lesson learned,” as reflecting poor argument.
Sorry, just as you guys get emmeshed in your world of defending the accused, I have been representing the Coast Bank borrowers and a hundred and fifty other investors in these deals for the past two years and feel their pain. With what I know of the plot that Coon and Miller hatched here, which in deceit goes well beyond what they were charged with, I found the premise that maybe there were no victims of their crime to be over the top and reacted accordingly.
Perfectly understandable, and I admire your dedication to your clients.
I don’t understand how 200 or so lawyers allowed their clients to sign the mortgage contracts that clearly outlined the particulars of the deal. I say caveat emptor to the mortgagees. How can 200 legal councils suddenly be wrong ?
The wisdom of crowds come to mind.
If Coon and Miller defrauded the mortgagees with a builder’s scam that is
a different problem.
Let’s argue that the builders delivered the goods,the housing market did not collapse, and these homeowners sold there homes and made a profit. Would you reverse everything back to zero ? Sour grapes ?
Maybe a better lawsuit is to sue all the lawyers ? Much deeper pockets and more direct to the problem. The lawyers should have advised against these contracts; like you are saying now.
John
These deals were marketed primarily through real estate investment clubs, real estate seminars and the internet. My impression is that very few of the investors consulted with an attorney.
You do make a good point. There is a lot of fraud and avarice going on every day that isn’t discovered because people are making money. Coon and Miller actually skimmed in some cases more than $20,000 from a single mortgage. Would have it been less of a crime if the investor had been able to sell for a profit?
Everyone’s a Victim, The Sequel
An email came in late yesterday from Alan Tannenbaum, the attorney representing the borrowers who sought victim status in the prosecution of Phillip Coon.