Will banks face a growing number of False Claims Act lawsuits based on government-backed mortgages in default? – Lexology

Alina's Blog

The legal aid group Advocates for Basic Legal Equality (ABLE) has taken a novel approach to using the False Claims Act by initiating a lawsuit against U.S. Bank. The case claims that U.S. Bank collected payments from the Federal Housing Administration (FHA) for FHA-backed loans deemed to be in default, rather than meeting its obligations to work out options with the borrowers.

ABLE relied on the information it obtained from customers and borrowers of U.S. Bank in bringing its suit. Borrowers, such as Mr. Hayward Ferrell, obtained mortgages from U.S. Bank guaranteed by the FHA. If a borrower defaults on an FHA loan, the government agency makes payments to the loan-issuing bank to make the bank whole. The FHA requires, however, that these banks make an effort to work with their borrowers to mitigate loss — so the government can limit expenditures on these loans.

In this lawsuit, ABLE has…

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