HOUSTON (CN) - A company accused of costing taxpayers hundreds of millions of dollars through serial mortgage fraud can block the suspensions enacted against it and its CEO by the government, a federal judge ruled Tuesday, granting a preliminary injunction.
In a federal complaint this month, the United States accused Allied Home Mortgage Capital Corp. and its alleged successor in interest, Allied Home Mortgage Corp., of committing serial frauds that cost taxpayers hundreds of millions of dollars and cost thousands of people their homes.
Allied and CEO James Hodge cried foul, claiming that the Department of Housing and Urban Development had violated their right to due process by suspending Allied's ability to originate and underwrite FHA-insured mortgage loans and Hodge's right to participate in FHA-insured lending.
Allied and Hodge quickly fought the allegations pitted against them by Manhattan federal prosecutors by filing for declaratory and injunctive relief in the Southern District of Texas.
U.S. District Judge Melinda Harmon in Houston granted the preliminary injunction on Tuesday.
Even if the United States has evidence against an Allied predecessor, the state views the two entities as separate and distinct, according to the court. "Texas law does not generally recognize successor liability for subsequent purchases of corporate assets," Harmon wrote.
The 22-page order touches on the threat posed to Allied and Hodge by the federal government. "In the wake of HUD's suspensions, plaintiffs have also been suspended by Ginnie Mae, Fanny Mae and the State of Maine," she wrote. "Their warehouse lines of credit have dried up. The potential destruction of plaintiffs' business outweighs any harm that would be suffered by the government before the issues can be litigated in the New York qui tam action."
In the interest of the public, the preliminary injunction will keep Allied from losing "over 700 jobs for its employees, the opportunity for those low income clients who were approved for mortgages to close on their homes, and the opportunity for others to borrow and purchase homes," Harmon wrote.
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