It is not uncommon for lenders to outsource their foreclosure work to law firms and outside attorneys, particularly over the past several years when foreclosures hit an all-time high. However, lenders working with loans backed by the Federal Housing Administration (FHA) are required to submit accurate and detailed paperwork with regard to any default or foreclosure of a government-insured mortgage. Failure to do so, as evidenced by today’s case, could quickly result in liability under the False Claims Act. Further, it is not considered an excuse by banks and lenders that their foreclosure work was handled by an outside firm, as the government expects lenders to engage in proper oversight and management of the process from beginning to end.
Details of Allegations Against HSBC
Like so many other lenders, HSBC experienced a dramatic influx of foreclosures in the years immediately following the housing bubble burst. It outsourced much of the legal aspect of the foreclosure process to outside law firms and, allegedly, let those firms handle the process with little or no oversight.
According to the allegations, HSBC routinely submitted inflated invoices for foreclosure-related fees to the Department of Housing and Urban Development (HUD), resulting in overpayment of FHA insurance claims in the millions of dollars.
Foreclosures can cost anywhere from $1,000 to $3,000, much of which is wrapped up in attorneys’ fees and court costs. To be reimbursed by the government, these fees must be specifically documented and itemized in order to ensure proper payment and the propriety of the imposed charge. According to the allegations, HSBC failed to monitor the activities of the attorneys and law firms to which it outsourced foreclosure work – resulting in overpayments.
Several years ago, an unidentified whistleblower commenced a lawsuit under the False Claims Act alleging that these invoices amounted to the submission of false claims under the statute. As a result, the Department of Justice launched a full investigation into the matter, and concluded that HSBC had in fact defrauded taxpayers by failing to properly assess fees pertaining to residential mortgage defaults and foreclosures. The matter recently concluded upon HSBC’s agreement to repay $10 million to the federal government.
Government’s Response to the Settlement
The government has worked diligently over the past several years, not only to clean up some of the mess caused by the housing bubble burst, but to help ensure a similar crisis does not happen again. According to one inspector for the FHA, “[HSBC’s] lack of controls showed gross neglect and an abject failure to serve their customers, FHA, and Fannie Mae, and therefore the taxpayers…”
In response to the settlement, HSBC issued a statement, remarking, “Since 2010, we have taken steps to enhance oversight of foreclosure law firms, and put in place a robust law firm management and oversight program even before we received notice of this particular action….”
Contact an Experienced Attorney Today
Despite the financial crisis, mortgage fraud scams continue to plague the residential lending industry. Unscrupulous lenders and shoddy oversight procedures can quickly lead to an economic downturn resulting in diminished home values and difficulties for well-qualified borrowers to find a home loan. If you are aware of fraud pertaining to a government-backed mortgage, we encourage you to contact Berger Montague today.