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Federal Audits Show Mortgage Lenders Defrauded Government With Robo-Signing

May 19, 2011

When our Fontana foreclosure defense attorneys last wrote about the ongoing robo-signing settlement talks, the major banks had offered a $5 billion settlement, roughly a quarter of the fine that state governments originally suggested. However, they may soon be forced to pay much more than that, if a May 16 article from the Huffington Post is right. The report says the federal Department of Housing and Urban Development has audited five major mortgage lenders -- Bank of America, Wells Fargo, Chase, Citigroup and Ally Financial -- and concluded that all five used false paperwork to file for reimbursements with the Federal Housing Administration. This breathes new life into the robo-signing settlement because it is a violation of the federal False Claims Act.

It's not clear what the paperwork in question is or how it was false; federal officials have declined to release details. However, the article says the false documents were used by the five lenders to file for insurance payments after the lenders foreclosed on properties worth less than the balance of the defaulted loan. This is illegal under the False Claims Act, a law allowing whistleblowers and the federal government to sue for three times the value of the fraud, plus other penalties. The report said two of the five banks refused to cooperate with the audits, and at least one, Wells Fargo, employs top executives who broke the law.

The news is expected to give the attorneys general negotiating the robo-signing settlement a new bargaining chip. The Justice Department is also expected to meet with the banks soon to discuss the allegations and decide whether to pursue separate criminal or civil penalties. And individual states including California are performing their own document reviews or considering lawsuits, the article says.

As Whittier foreclosure defense lawyers, we're pleased that these audits have brought banks' wrongdoing into the light of day. When robo-signing first broke, major lenders said repeatedly that this was only a "technical" problem, because nobody was foreclosed who hadn't gone deep into default on their loans. We've already written several times about examples where that wasn't true and individual borrowers' rights were not respected. This article shows another type of fraud created by robo-signing, but against all U.S. taxpayers, not just unlucky borrowers. Technical or not, collecting insurance payouts with false paperwork is against the law. We hope this dispels any lingering doubts about the wrongs done by robo-signing and helps government officials push for meaningful reforms and fines.

At Howard Law PC, we represent borrowers who are fighting for a fair chance at a loan modification. Lenders prefer that the government take a forgiving approach to their own paperwork problems, but our clients generally find that they aren't afforded the same generosity. Lenders use paperwork problems -- lost paperwork, very old paperwork (that they sat on for months) and missing documents (that they never requested) -- as a reason for delaying and denying loan modifications to people across California. Our Vista foreclosure defense attorneys help borrowers who are sick of the excuses to fight back, with aggressive negotiations and, when appropriate, litigation. By suing, you can take your loan modification out of the hands of a disinterested or incompetent lender and into the hands of a judge.

If you're in default or foreclosure, or expect to be there soon, and have gotten no help from your loan servicer despite months of trying, call Howard Law today for a free consultation on your case. You can reach us at 1-800-872-5925 or by sending us a message through our website.