Most of our cases are lender liability actions brought by businesses and investor groups against banks, mortgage companies and special servicers. Sometimes, however, we file cases on behalf of the United States and taxpayers. Our False Claims Act brought on behalf of the United States resulted in an historic win of $16.67 billion against Bank of America. That case, settled in 2014, became the large civil recovery against a single defendant in U.S. history.
Years before we filed the Bank of America case, however, we filed a lawsuit on behalf of taxpayers against Allied Home Mortgage and its CEO, Jim Hodge. The Allied case was one of the first cases filed against major lenders after the 2008 mortgage meltdown and only one of two big bank cases that went to trial. After hundreds of pleadings, motions and a month long trial, the decision in our case became final last week. Allied Was ordered to pay the government $268 million!
Allied changed its name a couple times over the last decade. Most homeowners know the company as Allied Home Mortgage. In its heyday it was the nation’s fifth largest FHA lender and had almost 2000 branch offices coast to coast.
On September 14th, Allied and Hodge officially lost. On that date, Judge George C. Hanks Jr. denied Allied’s motions for new trial and tripled the jury’s verdict of $92 million to $268 million. We filed the case under the False Claims Act and FIRREA (Financial Institutions Reform Recovery and Enforcement Act of 1989).
Branch Manager Peter Belli Claims Allied Falsely Certified FHA-Insurance Loans
Tuesday’s award against Allied Capital started in 2011, when we filed our False Claims Act case on behalf of the United States. The action was initiated by a former Allied branch manager, Peter Belli, who reported that the company was certifying high-risk loans as eligible for FHA insurance.
As a former branch manager of Allied’s largest branch, the late Peter Belli certainly knew what the company was doing. When senior management wouldn't clean up their act, Mr. Belli came to us. Unfortunately he passed before he saw last fall’s jury verdict and last week’s order denying requests for a new trial. Instead of getting a new trial. Allied was slapped with almost $200 million in additional penalties and sanctions.
We know Peter would be proud of the hard work by the Justice Department, HUD and all the other agencies that worked together to see justice prevail.
Government Intervenes in Suit Against Allied Corporation, CEO Jim Hodge
In November 2011, the U.S. government intervened in our False Claims Act lawsuit and filed an action against Allied Corporation, Allied Capital and President and CEO, Jim Hodge, claiming that Allied Capital certified thousands of ineligible loans for FHA insurance in violation of HUD’s Direct Endorsement Lender (DEL) guidelines.
The government also alleged that Hodge knowingly permitted Allied to originate the fraudulent loans out of over 100 shadow branch offices to hide their actions from the U.S. Department of Housing and Urban Development (HUD). A “shadow branch” is a location or branch office not registered with banking authorities. If the government doesn’t know about a branch, it can’t conduct audits or inspections.
Hodge was also accused of running an understaffed, inefficient compliance program. We claimed that Allied’s quality assurance workers were ordered to prepare fraudulent quality control reports for HUD auditors.
The Justice Department complaint claimed “Allied utterly failed to conduct audits of its branches or review its early payment defaults as it was required to do by HUD… Even while it was operating 600 or more branches at a time, Allied maintained only two quality control employees in its corporate office… [Allied’s] offshore employees had no mortgage experience
and, according to multiple witnesses, "did not even know what a mortgage was.’”
Peetr Belli, HUD and / or the Justice Department claimed that Allied:
Originated FHA loans from over 100 branch offices not approved by HUD (Shadow branches)
Used the shadow branches to knowingly hide default rates
Certified hundreds of ineligible loans for FHA insurance
Knowingly operated an understaffed compliance program that employed unqualified FHA-compliance reviewers
Submitted false reports to HUD
Falsely certified that it was compliant with HUD underwriting guidelines
2016 Jury Verdict Against Allied / Hodge Awards
On November 29th, 2016 a Houston federal court jury found in favor of the government under the False Claims Act and the Financial Institutions Reform Recovery and Enforcement Act of 1989 and ordered Allied to pay $85,612,643 in damages caused by defaulted loans. In addition, the jury ordered Hodge to pay $7,370,132.
But the huge jury verdicts were not the end of the story. Allied and Hodge demanded a new trial and sought to have the jury verdict tossed. Incredibly, the defendants remained as defiant as ever and continued to deny responsibility for their actions.
Judge Hanks Triples Verdict Against Allied To $268M, Hodge Verdict Hits $23M
On September 14, Judge Hanks dismissed their motions and tripled the jury’s $93 million verdict to $268,757,929 plus interest against Allied Corporation and $23,140,296 plus interest against Jim Hodge under the False Claims Act and FIRREA.
“Even a cursory review of the trial record reflects that the United States presented significant and credible evidence from multiple sources from which a jury could conclude that Allied’s conduct of recklessly underwriting and originating loans from unregistered branch offices was a substantial factor in the submission of claims…” said Judge Hanks. “Rather than making an isolated or occasional mistake, Allied engaged in a prolonged, consistent enterprise of defrauding the United States.”
Judge Imposes Additional FIRREA Penalties
The False Claims Act is a Civil War era anti-fraud statute. Because violations of the Act involve fraud, the court can triple a jury’s award of damages and impose penalties of up to $21,000 per improperly certified mortgage. (When we filed the case, the maximum penalty was $11,000 per violation.) Under FIRREA, each violation is subject of a additional penalty of up to $1.1 million. Judge Hanks imposed a total of $12,950,000 in False Claims Act penalties ($10,000 per violation) and a total of $6.6 million in FIRREA penalties (using the maximum allowed FIRREA penalty of $1.1 million for each violation).
Last week’s ruling does not prevent Hodge and Allied Home Mortgage from appealing the damage awards to the 5th Circuit Court of Appeals. The appeals court could require that the Allied and Hodge each post a bond high enough to cover the damages and penalties.
Now that the court has ruled on post-trial motions, the defendants will likely appeal. The court could require the company and Hodge to post bonds covering the damages, however.
If you work for a bank. lender or mortgage servicer and know of fraud involving government backed mortgages (Fannie Mae, FHA, Freddie Mac or VA) you may be entitled to an award. Awards can range between 10% and 30% of what the government collects. If you want more information, visit our bank whistleblower website or contact attorney Brian Mahany at (414) 704-6731 (direct).
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