(CN) – Bank of America falsely certified that its home modification loans complied with federal laws in order to reap more than $907 million in government incentive payments, a man claims in a qui tam lawsuit in Federal Court.
Michael J. Fisher, of Southlake, Texas, says in his False Claims Act lawsuit that he worked for four years – 2008 through 2012 – assisting attorneys in securing mortgage loan modification for their homeowner clients.
The complaint was filed under seal in March in Manhattan Federal Court and unsealed this month.
Fisher claims to have reviewed hundreds of loan modification contracts from Bank of America and other lenders. He says he noticed a pattern of violations of the Truth in Lending Act.
Specifically, he claims, Bank of America consistently failed to inform the borrowers of their right to rescind their request for a loan modification.
Section 1635 of the TILA “requires notice of the borrower’s right to rescind consumer credit transactions in which a security interest is retained or acquired in property that will be the borrower’s principal dwelling, until midnight of the third business day after consummation of the transaction or delivery of the TILA rescission forms, whichever is later,” the complaint states.
It continues: “Written acknowledgement of any required TILA disclosure creates only a rebuttable presumption of delivery. Refinancings with no new advances, but the same creditor and secured by the same property, and certain other transactions are exempted from the rescission provisions.” (Citations omitted.)
Fischer adds: “The actionable conduct alleged as unlawful herein involves transactions which were not exempted from the rescission provisions.”
The focus of Fisher’s concern appears to be those loans in which “new money” is advanced to consumers. In those cases, he says, the amount of the new money is rescindable, and in those cases, Bank of America and other creditors are required to provide the consumer with two copies of a notice of right to rescind, “which must be a separate document clearly and conspicuously disclosing the rights and process of rescission.”
“Unless the consume waives the right to rescind, which is permitted only in limited circumstances, no money shall be disbursed, other than in escrow, no services shall be performed, and no materials shall be delivered unless and until the three-day period passes without the right of rescission being exercised,” Fisher says in the complaint.
After the onset of the global financial crisis, the federal government created the Home Affordable Modification Program to encourage lenders to modify home-secured loans. Under HAMP, lenders, owners of loans and borrowers all receive incentive payments from the government in connection with granting each modification and keeping the modified payments current.
In addition to the initial incentive payment, lenders could also receive “Pay for Success” incentives of up to $83.33 per month.
“Thus, servicers may, post-October 1, 2011, be paid up to $4,600 for a permanent HAMP loan modification that continues in good standing for thirty-six (36) consecutive months ($1,600 for modification plus $3,000 maximum for total good standing payments.),” Fisher says.
He claims that in order to participate in the windfall, Bank of America falsely certified its full compliance with federal, state and local laws, and by extension the rules governing the HAMP program.
“In the numerous HAMP and non-HAMP BANA/BAC [Bank of America North America/Bank of America Corp.] loan modifications review by the Relator, BANA/BAC virtually always loaned new amounts of principal to the borrower by adding it to the original loan principal balance,” Fisher says. “The amount of the new, additional loan advances made to borrowers in modifications reviewed by Relator, above and beyond the principal balance owed prior to the modification, amounted to tens of thousands and even in excess of $100,000. … BANA/BAC does not, however, provide the required notice of the right of rescission notwithstanding the resulting first lien mortgage on the additional amount advanced.
“In some instances, BANA/BAC added monies to the principal of modifications in a lump sum without any itemization of the amount financed, making it impossible for the borrower to discern what charges comprised the added principal.”
Fisher claims: “All of these contracts with increased indebtedness were secured and finalized without providing the borrowers the legally required notice of the right to rescind. The BANA/BAC HAMP loan modifications reflected new balances that were always substantially more than the pre-modification outstanding principal balances on the HAMP modifications reviewed by the Relator.”
Fisher seeks three times the damages suffered by the United States, and his hare of civil penalties to which the government is entitled under the False Claims Act.
He is represented by Samuel L. Boyd with Boyd & Associates of Dallas, and Stephen A. Weiss with Seeger Weiss in New York.
- SEC Charges 2 With Insider Trading in Mass. Bank Deal
- Abuse Recantation Will Not Set Brother Free