Mortgage Lender May Face FCA Liability For False Statements In HUD Applications And Annual Certifications In Connection With Loans That Ultimately Defaulted
Last week, the United States District Court for the Northern District of Illinois denied a motion to dismiss an FCA suit brought by the government against the president of MDR Mortgage Corp., a HUD and FHA loan correspondent. U.S. v. Luce, 2012 U.S. Dist. LEXIS 85095 (N.D. Ill. Jun. 20, 2012). The court held that the government may pursue its claims based on allegations that the defendant falsely certified in HUD residential loan applications (Form 92900-A) and annual verification reports that he had not previously been charged with “making false statements,” a crime for which he was indicted in 2005. In reaching this holding, the court held that the government had alleged that at least some of the loans connected to the false statements had defaulted, causing the government to pay money on the loan insurance policies, and was not required to specify the amount of damages at the pleadings stage. Notably, however, the court rejected the government’s contention that the defendant would be subject to statutory penalties for each of the loans for which false statements were submitted; rather, the court held that the government could only recover penalties as to those loans that resulted in a “claim” on the loan insurance.