Reverse Mortgage Servicer to Pay $89 Million to Resolve False Claims Act and FIRREA Claims

DOJ  •  FCA/FIRREA  •  HUD  •  Mortgage

On May 16, 2017, the U.S. Department of Justice (“DOJ”) announced that it had reached a settlement with a company engaged in reverse mortgage servicing, in connection with the company’s participation in the Department of Housing and Urban Development’s (“HUD”) Home Equity Conversion Mortgage (“HECM”) program, which offers senior citizens reverse mortgages insured by the Federal Housing Administration (“FHA”).

The settlement agreement resolves allegations the company violated the False Claims Act (“FCA”), 31 U.S.C. § 3729, and the Financial Institutions Reform, Recovery and Enforcement Act, 12 U.S.C. § 1833, by submitting false claims for interest payments to the FHA.  Under the HECM program, a loan becomes payable and fully due when the home is sold, vacant for more than twelve months, or upon the death of the homeowner.  The lender is then entitled to any interest that accrues on a lender’s expenses after the loan becomes fully due and before a claim is submitted.  In this case, the government alleged that the company failed to properly disclose that it did not meet HUD’s deadlines for securing an appraisal of the property, submitting insurance claims, and pursuing foreclosure proceedings.  According to the government, the failure to disclose these missed deadlines rendered the company ineligible for FHA interest payments.

The lawsuit was initiated under FIRREA’s whistleblower provisions by a consultant for the estates of consumers who took out loans under the HECM program.  Under the settlement agreement, the whistleblower will receive $1.6 million of the $89 million settlement.  The DOJ’s Civil Division, the United States Attorney’s Office for the Middle District of Florida, and HUD’s Office of Inspector General and Office of General Counsel coordinated settlement efforts in the matter.  The company did not admit any wrongdoing as part of the settlement.

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