The US Supreme Court Tuesday heard arguments born out of the subprime mortgage crisis concerning how to estimate a property’s value when its worth has plunged.
Benjamin Robers borrowed a total of $451,000 he never intended to pay back in a mortgage fraud scam in the midwestern state of Wisconsin just before the housing market collapsed.
Robers — who now must pay the difference between the mortgage price and value of the properties, which were eventually taken back by the bank — argues the properties should be valued at their foreclosure price in 2006.
The properties were foreclosed at a value of $330,000 when they were taken over by the bank, but two years later during the heart of the financial crisis sold for only $282,000.
A brief filed before the hearing by the United States Department of Justice argued that the amount of restitution due to the lender should be offset by “the amount of money the lender ultimately obtains by reselling the house.”
Justice Samuel Alito compared the situation to a truck full of tomatoes that are sold once they have gone bad and lost most of their value.
The case could open the door to other suits linked to the subprime mortgage crisis, in which millions of small investors faced ruin. The decision is expected before June.
[Image via Agence France-Presse]