On February 10, the U.S. Court of Appeals for the Seventh Circuit issued an opinion, in which it held that a District Court had erred in failing to consider a bank’s responsibility for nearly $900,000 in losses resulting from a scheme in which defendants persuaded the bank to issue mortgage loans to borrowers who, the defendants knew, were unable to repay the loans. See U.S. v. Litos, et al., Nos. 16-1384, -1385, -2248, -2249, -2330 (7th Cir. Feb. 10, 2017) (Posner, R.). At issue before the appellate court was the propriety of the restitution, in the amount of $893,015. The district judge had ordered the defendants to pay such restitution to the bank, on the ground that they had misled the bank by pretending that the buyers were the source of the down-payment, when it was defendants themselves who had supplied the money.
In remanding the matter with instructions to re-sentence defendants based on the bank’s role in allowing the fraud to occur, the appellate panel determined that the bank’s professed ignorance as to the source of the down payments and the creditworthiness of the loan applicants was “reckless” in light of the information that was available at the time of the transaction. Specifically, the appellate court held that, based on the record, the fraud evident in the loan applications was “transparent,” and that the bank had “ignored clear signs” of problems with the loans. The appellate court held that, as a result, the lower court needed to determine whether the bank’s lack of clean hands rendered it partially responsible for the losses. Among other things, the appellate panel noted statements by the district judge that the loan applications were “a joke on their face” and “laughable,” as well as the fact that the bank had approved multiple loans to the same individuals in short spans of time. Accordingly, the court ordered the district judge to consider whether the bank is entitled to restitution.