by Brian Mahany
Because we represent homeowners, mortgage company employees and sometimes the interests of taxpayers (federal false claims act cases), we see new frauds and shady deals in the lending industry just about everyday. Some, like forged documents and phony appraisals, are pretty obvious. Others such as sham “marketing services agreements” are tougher to spot.
To understand the scam, one needs to first understand the law. The Real Estate Settlement Procedures Act (“RESPA”) and HUD rules say that mortgage lenders can’t pay kickbacks or referral fees. The reason for the law is simple. HUD wants to insure that potential borrowers are steered to quality lenders, not to the the lenders who are making illegal kickbacks. As we all learned in 2008, shady loans are the first to default. Because so many home mortgages are insured or backed by the government, taxpayers are often left holding the bag when a loan defaults.
Federal law does allow lenders to help defray legitimate marketing costs, however. These payments usually come in the form of a marketing services agreement or “MSA”. Because some payments are allowed while others are not, the lines between legitimate and illegal payments can get pretty fuzzy.
Lately HUD has been cracking down on lenders who try to disguise referral fees as some other legitimate payment. HUD looks at the reasonable value of the service performed and compares it to the payments made by the lender. The regulations say that there must be a reasonable basis for the amount of the payment.
The penalties for an improper marketing payment include audit, fines and even revocation of the ability to offer loans backed by the government.
This probably sounds quite dry but improper marketing services agreements have cost taxpayers millions of dollars. Ultimately, these kickbacks were part of the reason the entire lending industry teetered on collapse and the housing market crashed. That means that not only do taxpayers lose but so does everyone who is “underwater” on their mortgage.
If you have nonpublic information about lenders using improper marketing services agreement, you may be entitled to a cash award under the federal false claims act. That law empowers whistleblowers to file an action in the name of the government and keep a percentage of any monies recovered.
Recently, many of the largest fraud cases against U.S. lenders were started by whistleblowers. They are the new American heroes.
If you have inside information about improper MSA’s or any type of illegal lending, underwriting, loan modification or foreclosure practices, give us a call. Our mortgage fraud lawyers currently have the largest false claims act case in the U.S., HUD’s $2.4 billion case against Allied Home Mortgage. We certainly understand the industry and enjoy helping whistleblowers collect their fair share of awards while also putting a stop to fraud.
For more information, contact attorney Anthony Dietz by email at or attorney Brian Mahany at . For immediate attention, contact attorney Brian by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney client privilege and kept in complete confidence. We can help you determine if you are entitled to an award.
Mahany & Ertl – America’s Fraud Lawyers. We proudly give a voice to whistleblowers throughout the United States. Our offices are in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in many jurisdictions.