Three law firms are seeking participants in a class action law suit seeking damages from 13 lenders for alleged fraudagainst borrowers seeking Veterans Administration (VA) home loans. The suit charges that the lenders charged fees for their loans which were unallowable under VA mortgage rules, an action that technically, according to the suit, invalidated the VA guarantee.
The suit, U.S. ex rel, Victor E. Bibby & Brian J. Donnelly v the defendants listed below, was originally filed in 2006 by two "whistleblowers" who were also mortgage brokers. The suit was refiled by the three law firms in the U.S. District Court for the Northern Division of Georgia this past June and is brought as a qui tam lawsuit, a civil proceeding that is used by whistleblowers to help the government stop many kinds of fraud such as Medicare or defense contractor fraud, and recover monies that have been stolen from the U.S. Treasury and taxpayers. In a qui tam suit a whistleblower can win large rewards representing a portion of the civil recovery.
Listed as defendants are Wells Fargo Bank, Bank of America, JPMorgan Chase Bank, GMAC Mortgage, CitiMortgage, Suntrust Mortgage, Washington Mutual Bank, PNC Bank (which acquired National City Mortgage Co.), Countrywide Home Loans, Mortgage Investors Corp., First Tennessee Bank (which acquired First Horizon Home Loan Corp.), Irwin Mortgage Corp. and New Freedom Mortgage Corp.
The premise for the suit rests on a VA rule that certain fees typical to a real estate transaction i.e. attorneys' fees or settlement closing fees are not allowed in closing a VA loan for the purpose of refinancing. The defendants allegedly charged these fees but disguised them as allowable fee entries on HUD settlement statements. For example, the lender might charge a settlement fee of $400, but rather than entering that amount on the line provided in the statement where it would be disallowed it might be bundled into the fee for a title search, increasing what would normally be an allowable $150 charge to $550.
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