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July 1, 2013 Mortgage Fraud

Countrywide Whistleblower Receives $14.5 Million in Mortgage Fraud Case

After filing a 2009 qui tam lawsuit against Countrywide Financial on behalf of the United States government, whistleblower Kyle Lagow has learned that he will receive a relator’s share of $14.5 million. Lagow, who formerly worked as an appraiser with Countrywide subsidiary LandSafe Inc., accused the lender of fraudulently inflating appraisals on government-insured mortgage loans. Lagow’s whistleblower lawsuit was finally unsealed in 2012, when he was awarded a percentage of the government’s total $1 billion settlement.

The False Claims Act suit filed by Lagow was one of five whistleblower complaints that were settled as part of a $25 billion national mortgage settlement government officials reached with Bank of America and four other lenders in 2012. Countrywide, which was purchased by Bank of America in 2008, settled their suit with the government for $1 billion.

The Whistleblower’s Allegations

Lagow worked for LandSafe Inc., a unit of Countrywide, in Plano, Texas, from June 2004 to November 2008. During his time there, Lagow claims he observed his employer participating in a “corrupt underwriting appraisal process.” In the official complaint, Lagow alleged that since at least 2003, Countrywide fraudulently inflated home appraisals in an effort to increase the value of the mortgage loans it sold on the secondary mortgage market. These falsely inflated appraisals caused “numerous” false claims for payment to be submitted to the government after the Federal Housing Administration (FHA) insured loans went into default.

In order for the mortgage fraud scheme to work properly, both Countrywide and LandSafe had to work in conjunction. Countrywide sent each of their home appraisals through LandSafe for evaluation. According to Lagow, LandSafe would provide the appraisal value at whatever price Countrywide requested.  In some instances, appraisals were inflated by over $80,000 per property. As a result, the FHA ended up insuring home mortgages under false pretexts and the government was eventually forced to repay Countrywide at falsely inflated amounts when borrowers defaulted.

According to Lagow, Countrywide would put pressure on its home appraisers, encouraging them to over-inflate home values. This was allegedly done so Countrywide could obtain larger federal loans and rake in a larger overall profit. In return for participating in the mortgage fraud scheme, Countrywide would pay its appraisers above-market fees. Lagow also claimed the lender would highly reward those appraisers who produced upwards of 400 appraisals and reviews a month. In reality, when done properly and legally, an employee could never achieve such a high number of appraisals in a one month period.

In addition to defrauding the government, unsuspecting homeowners were also hurt as a result of the Countrywide mortgage fraud scheme. For instance, the homeowners ended up paying on mortgage loans that were never truly established at their real market value. Making things even worse, most homeowners never knew they had been duped until they decided to sell their property and hired an independent home appraiser.

Reporting Mortgage Fraud

After learning of the fraudulent lending practices within Countrywide, Lagow attempted to speak with several supervisors and company executives. He even offered suggestions, providing his superiors with possible solutions that would fix their internal problems. According to Lagow, he encouraged Countrywide to lower the interest rates on affected mortgages in an attempt to make it easier for borrowers to keep their homes out of foreclosure. Instead of listening to him, Lagow said, “they looked at me like I was nuts and said, ‘No thanks, Kyle. Go back to doing your job.’”

After approaching several key supervisors about the mortgage fraud, Lagow was eventually fired from his job in November 2008. He claimed that he was never given a reason for the termination, other than the company had chosen “to go in a different direction.”

After seeing the recession take its toll, Lagow decided it was time to come forward with his first-hand knowledge of the Countrywide mortgage fraud scheme. In the spring of 2009, Lagow found a False Claims Act law firm and consulted with a whistleblower attorney specializing in qui tam litigation. In May 2009, he filed a False Claims Act lawsuit against Countrywide and a number of its executives.

Mortgage Fraud Under the False Claims Act

Lagow’s qui tam suit was brought under the whistleblower provisions of the federal False Claims Act, which authorizes a private citizen to bring a lawsuit on the government’s behalf if they have knowledge of fraud. If the suit is successful, the whistleblower is entitled to share up to 30 percent of the government’s total recovery.

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