DOJ seeks to quash reverse mortgage lenders’ defenses in lawsuit

The presiding judge in a case between reverse mortgage lender Nutter Home Loans (formerly James B. Nutter & Co.) and the US federal government has accepted an argument from the Department of Justice (DOJ) to allow intra-government agencies to work together in providing information relevant to the case, and government efforts against Nutter. This is according to court documents obtained by RMD.

In the initial complaint that was filed by the DOJ against the lender last fall, the ministry alleges that Nutter forged certifications and used unqualified underwriters to approve home equity conversion mortgages (HECMs) backed by the Federal Housing Administration (FHA) and initiated between 2008 and 2010 in an effort to strengthen its production of reverse mortgages.

Additionally, in July, Nutter filed a response to the government that denied “a substantial portion of both the government’s legal claims and the factual basis for those claims,” ​​according to a court file obtained by RMD. This response also included 25 affirmative defenses, which the government is currently seeking to eliminate.

Judge accepts government argument for intra-agency collaboration

The question is whether a provision for the disclosure of intra-government information should be allowed. Nutter has alleged that the process – if any – for intragovernmental information sharing is unwarranted and could present an unfair advantage to the government in his case.

“After examining the arguments of the parties and balancing the interests invoked, the Court concludes at this stage that the language proposed by the government allowing the intragovernmental sharing of information is justified,” said Judge Roseann A. Ketchmark.

Defenses filed by Nutter and the government opposition

Of the 25 affirmative defenses filed by the lender in response to the original complaint, many are based on functional legal grounds, such as the government “failing to make a claim on which relief can be granted to Nutter.” , and that claims against the Lender are “prohibited by the doctrines of Waiver, Estoppel, Surrender, Consent, Ratification, Judicial Estoppel, Agreement and Satisfaction, and / or res judicata ”. Nutter also argued in a defense that many of the deals at the heart of the complaint had themselves already been approved by the government when they were created.

The following month, however, the government filed a response to Nutter’s introduction of affirmative defenses, challenging 14 of the 25 presented, which ranged from an attempt to invalidate the company’s views on legal mechanisms to the work, in addition to challenging Nutter’s position in interpreting regulations, requirements and legal precedents. As to the idea that the government had already approved the transactions at the heart of the dispute, the government maintains that the HUD does not in itself have the power to recover a civil sanction; only the United States Attorney General under the auspices of the DOJ has such authority. This renders the defense cited by Nutter moot, the government argues.

The government also challenges a defense that contends that the United States “suffered no harm” as a result of the allegations, responding that such a standard does not form the basis for a violation of the False Claims Act (FCA) or of the Financial Institutions Reform. , Recovery, and Enforcement Act of 1989 (FIRREA), which are two bases on which the government pursues action against the lender.

Nutter’s lawyer also argues in an affirmative defense that “government claims are excluded, in whole or in part, by the doctrine of unclean hands and unjust enrichment,” which the government retorts by saying that the lender provides no factual basis for such a defense and that the argument is contradicted by saying that laws passed by Congress cannot be used against the United States if such an argument is made for the purpose of preventing the government to enforce the law.

Nutter quickly filed a response against the government’s efforts to remove such affirmative defenses, stating earlier this month that “the government’s arguments regarding Nutter’s affirmative defenses are not legally substantiated and are furthermore premature. […] The government’s motion should be defeated and Nutter’s affirmative defenses should not be removed.

The judge has yet to answer the question of the affirmative defenses.

Next steps, recent history

A representative of the United States Attorney’s Office for the District of Columbia had previously informed RMD that the current policy was not to comment on pending litigation, although the representative had previously confirmed that a trial date had been set. . No further opinions or statements from the lawyers representing the government in this case have been filed at the time of publication. Previously, Justice Ketchmark proposed a lengthy programming process that began with a discovery starting in April 2021 and ending with a jury trial that is now scheduled to begin on August 21, 2023.

The allegations, if true, would undermine the financial viability of the HECM program within the Mutual Mortgage Insurance Fund (MMI), and this action indicates that the federal government takes any threats to the integrity of the HECM program seriously. , according to HUD. Inspector General Rae Oliver Davis.

“Lenders who willfully ignore the FHA’s requirements for HECM loans are exposing the program to significant financial losses that threaten the future availability of this important program for seniors,” Davis said in September 2020. “This complaint is the complaint. proof 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, released a report citing the government case against Nutter Home Loans and another case against another HECM lender as evidence of its commitment to enforcement.

About Elizabeth Fisk

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