by Brian Mahany
Most of our readers know that we sue banks and mortgage lenders on behalf of homeowners victimized by predatory foreclosure practices. Lately, we have been gathering information against Wells Fargo, Bank of America, Bank of New York and others after hearing horror stories of robo-signing, forged documents and even foreclosing against a couple who never missed a payment. The other part of our business, however, is suing banks on behalf of taxpayers. This post discusses Swiss bank UBS’ attempt to dismiss a suit against it by the Federal Housing Finance Authority.
The UBS case is much like our landmark $2.4 billion claim brought on behalf of taxpayers against Allied Home Mortgage. Many lenders misled Fannie Mae and Freddie Mac into purchasing risky or toxic mortgage debt. Most residential mortgages today are sold. That means that the bank who loans you the money to purchase your home usually doesn’t hold the paper. Once the mortgage is written, the note is sold to investors.
To insure that there is liquidity and money available for homebuyers when needed, Freddie Mac and Fannie Mae guaranteed many of those loans. Although technically not government entities, the two agencies are backed by the government. That means when the agencies ran out of money, the government stepped in. In 2008, after running low on funds to pay the mortgage guarantees, the government took over both agencies.
Last year, the government sued UBS bank saying that it misrepresented the mortgages being sold to investors. Specifically, they say that loans sold by UBS did not meet underwriting guidelines resulting in billions of losses to taxpayers.
UBS denied the allegations and argued that the government waited too long to bring the claims. The latter point has become an issue as the housing crisis dates back to 2007 and state and federal laws say that most complaints must be brought within a few years of being discovered.
In this case, the court ruled that the Housing and Economic Recovery Act of 2008 (HERA) supercedes the normal time limits and gave the government more time to file suits – 3 years from the date it took over Freddie Mac and Fannie Mae. HERA was rushed through the Senate during a special weekend session. It authorized the government to take over both agencies. The judge noted that the 2008 law specifically charged the government with taking such actions as necessary to “preserve and conserve” their assets. From that language, she gathered it was Congress’ clear intent to give the government more time to bring claims.
In addition to UBS, the government filed 16 other cases against large mortgage lenders including Bank of America, Chase, Citigroup and Ally. Although its now been more than 3 years since the government took over both agencies, there is still $100 billion in claims pending. Last week’s decision should make those banks nervous.
We like the case because it reaffirms that banks can be held liable for the actions of third parties. U.S. District Court Judge Denise Cote ruled that a “defendant cannot simply claim that she blindly reported information given to her by third parties and thereby avoid liability for inaccuracies that made their way into the offering materials.”
To date the government has lost $150 billion on Freddie Mac and Fannie Mae.
Many of the largest fraud cases against lenders were started by whistleblowers – concerned workers who don’t like seeing taxpayers getting ripped off. If you work or previously worked for a bank and know of illegal conduct resulting in losses to the government, give us a call. For more information, contact attorney Anthony Dietz at . For immediate assistance, contact attorney Brian Mahany at or by telephone at (direct). All calls are protected by the attorney client privilege and kept in strict confidence.
Mahany & Ertl is a full service law firm. As a general rule, we do not handle foreclosure defense work. Instead, we sue lenders and servicers in state and federal court for their wrongful and illegal conduct including fraud and forgery. If you think you have a case that meets our criteria and feel that you have been denied justice or know of losses to taxpayers, give us a call.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in many states.