Reverse Mortgage Lender’s Movement to Dismiss DOJ Case Denied by Decide
A reverse mortgage lender’s motion to dismiss a case based on a U.S. Department of Justice (DOJ) complaint has been denied by the chairman, allowing a pre-set hearing to proceed as planned. This is evident from court documents received from RMD and statements made by the lender’s legal representatives to other reporting agencies.
The dispute arose out of a complaint by the DOJ against reverse mortgage lender Nutter Home Loans (formerly known as James B. Nutter & Co.), a complaint the DOJ filed against the lender last fall. As the DOJ alleged in last year’s original lawsuit, Nutter allegedly falsified certifications and used unqualified underwriters to approve Federal Housing Administration (FHA)-assisted Home Equity Conversion Mortgage (HECM) loans between 2008 and 2010 to improve his Strengthen production of reverse mortgage loans.
Nutter officials continued to deny the allegations, arguing that there was insufficient evidence to support the government’s claims, while the government claimed that it had provided sufficient arguments to continue the trial. In this latest development, a judge sided with the government and stated that they adequately confirmed the reasoning behind the complaint.
In the original motion to dismiss the case, the Nutter Home Loans Representation stated that the DOJ’s original complaint lacked the facts and information necessary to move the case forward.
“If the process goes ahead, the government could seek unreasonable windfall and seek compensation for insurance payments on loans duly made by the company to borrowers who are eligible and qualified for the HECM program,” said Edward T. Kang, one Partner in Alston & Bird LLP’s DC office defending the company in this lawsuit. “The company believes this government effort to get involved in Monday morning quarterbacking will be rejected.”
That was not how presiding judge Roseann A. Ketchmark saw things, however, as evidenced by the records explaining her denial of the dismissal motion.
“After examination, the court finds that [DOJ] sufficiently claims the “who, what, where, when and how” of [Nutter]’s alleged wrongdoing, ”the document reads.
Under the False Claims Act (FCA), any entity must be held liable for “knowingly presenting or having a false or fraudulent claim for payment or authorization presented,” according to the law cited by Judge Ketchmark. This constitutes point I of the complaint, while point II concerns the imposition of liability on anyone who “knowingly creates, uses or makes or uses false record keeping or testimony for a false or fraudulent claim”. Law says as quoted again by the judge.
“As for Count I, it is stated with certainty in the pleadings how [Nutter] ‘knowingly present[ed], or cause[d] presented ‘a false or fraudulent payment or authorization claim,’ ”she writes. “As for Count II, it is stated with certainty in the pleadings that [Nutter] ‘knowingly ma[de], to use[d], or cause[d] made or used, a false record or explanatory material relating to a false or fraudulent claim. ‘ [DOJ]Allegations of falsehood, materiality, and causality [intent of knowledge or wrongdoing], are enough to survive the discharge. “
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) gives the federal government the power to collect civil penalties for any violation of the laws that apply to the case, says Judge Ketchmark. The DOJ has successfully pointed out where it believes violations of FIRREA have occurred, as well as possible breaches of contract and fiduciary duty, which can also be brought to court in an upcoming trial.
The dismissal petition also provides some details on Nutter Home Loans’ history in the reverse mortgage area and states that the company became a direct HECM lender from August 1995 and annually certified its compliance with government regulations and practices to become “Computerized Homes” Obtain Underwriting Management Identification, which enables an underwriter to approve FHA mortgage insurance loans on Nutter’s behalf. She did this for employees and / or contractors whom she wanted to establish as qualified underwriters, a core part of the DOJ’s dispute.
Reaction of the parties
In a statement to RMD, Kang stated that the outcome of the dismissal motion is not what the company wanted to hear, but looks forward to bringing all material facts to court, and that the court only recognized the allegations as true based on the trial Conditions.
“While disappointed with the outcome of the order, the company notes that the court has accepted all of the allegations made in the lawsuit as true, as required at this stage of the process,” Kang told RMD. “The company looks forward to the opportunity to provide evidence that the allegations in the complaint are inaccurate and that the government cannot meet its burden of proof.”
A U.S. Attorney’s representative for the District of Columbia previously told RMD that its current policy is not to comment on pending litigation, despite the fact that the agent previously confirmed that a trial date has been set. At the time of going to press, no additional communications or statements have been filed from the attorneys representing the government on this case.
Previously, Judge Ketchmark suggested a lengthy planning process that begins with the April 2021 discovery and ends with a jury trial that is slated to begin immediately on August 21, 2023.
The allegations, if true, would undermine the financial viability of the HECM program within the Mutual Mortgage Insurance (MMI) fund, and that move signals that the federal government takes seriously any threat to the integrity of the HECM program, according to HUD Inspector General Rae Oliver Davis.
“Lenders who willfully disregard FHA requirements for HECM loans expose the program to significant financial losses that jeopardize the future availability of this important program to seniors,” Davis said in September. “This complaint is evidence that we will relentlessly investigate allegations of abuse of the HECM program by FHA lenders.”
In December 2020, about a month before President Joe Biden’s inauguration, then-HUD Secretary Dr. Ben Carson and then HUD Chief Financial Officer (CFO) Irv Dennis in consultation with the HUD OIG issued a report in which the one case against Nutter Home Loans and another case against another HECM lender as evidence of his obligation to enforce.