Texas False Claims Act Verdict

$93 million Texas False Claim Act Verdict for Mortgage Violations

After a five-week-long trial, last week, the U.S. Attorney for the Southern District of Texas announced that a federal jury in that court had issued a Texas False Claims Act verdict finding that a couple of related mortgage companies, which used to called Allied Home Mortgage Capital Corp. and Allied Home Mortgage Corp and their CEO Jim C. Hodge were liable for violating the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) for their role in defrauding a mortgage insurance program run by the Federal Housing Administration (FHA). Allied once boasted of being one of the largest mortgage underwriters in the country.

According to the government allegations, which the jury concluded were true, the defendant mortgage companies were liable for reckless underwriting, in that they violated various FHA guidelines and requirements when originating FHA loans. The government argued that the defendant mortgage companies routinely failed to engage in due diligence when originating loans and routinely manipulated borrower data, which resulted in numerous false certifications of underwriting compliance, leading to defaults on those loans. The jury determined that these actions resulted in $85.6 million in losses to HUD.

They were also found liable for not properly certifying their compliance with the program for originating FHA loans from what the government termed “shadow branches” that had not been approved by the Department of Housing and Urban Development (HUD) and for purposely concealing their use of FHA IDs for other branches. The defendant mortgage companies also failed to pay the operating expenses for FHA branch offices and they were commonly understaffed. They also had unqualified people doing quality control for their 600 branches. As the jury saw it, these actions, as well as their concealment of prior sanctions and convictions of its employees, were the direct fault of the company CEO and resulted in $7.3 million in losses to HUD and affected 103 loans.

In all, the jury verdict awarded just under $93 million in damages in damages, including the $7.3 million damage award against the CEO individually. While the initial award is very high, it could actually go much higher, since FCA damages can be trebled and as much as $11,000 for each individual violation can be assessed on top of the damage verdict. Also, FIRREA statutory penalties can be added on top of that. U.S. District Judge George C. Hanks, Jr. will determine the total penalties and damages at a later date.

The initial lawsuit was a whistleblower lawsuit that was among a number brought against lenders who underwrote loans that were insured by the FHA Direct Endorsement Program in the wake of the 2008 economic crisis. The original whistleblowers can look forward to a hefty payout for their actions. In all cases under the False Claims Act, the first whistleblower to file  is entitled to a cash award that can range as high as 30 percent of the recovery. Since January 2009, the government has recovered more than $30 billion under the FCA, which protects taxpayers from contractors and others who would commit fraud against the government.

If you have first-hand knowledge of any activity that results in fraud against taxpayers, please   contact the False Claims Act Lawyer atThe Hill Law Firm. We can help you file a lawsuit to start the process to stop the bilking of taxpayers and make sure you are properly credited and get the reward you deserve in the process.

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