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Defunct Mortgage Lender Can’t Duck Fraud Claims

ATLANTA (CN) - The owner of a now-defunct mortgage lender cannot duck claims that he defrauded the United States of millions of dollars by falsifying loan applications, a federal judge ruled.

Home America Mortgage, a former private lender based in Atlanta, and Ocala, Fla.-based Taylor, Bean & Whitaker Mortgage Corp., which acted as the underwriter for Home America's mortgage loans, faced claims that they induced the United States to insure dozens of bad mortgage loans.

Two whistleblowers brought a false claims action against the two companies in December 2006, alleging they had caused the government to lose more than $131 million.

Greg Hicks, who owned 90 percent of Home America, and Carl Wright, an Atlanta-based closing attorney, were also named as defendants.

According to the complaint, Home America originated mortgage loans and immediately sold them to Taylor, Bean & Whitaker, which applied for federal mortgage insurance for the loans. The whistleblowers claimed that Hicks and Home America changed borrower and property information on loan applications, fabricated documents and overrode safeguards on rejected applications, causing the government to insure high-risk loans.

Taylor, Bean & Whitaker, formerly one of the largest privately held mortgage companies in the United States, collapsed in the aftermath of a scheme that involved securities-backed loans. From 2002 to 2009, TBW acted as a middleman between investors and lenders such as Home America, borrowing money from banks to buy Federal Housing Administration-insured home loans. The firm then pooled the loans into securities guaranteed by the government and sold them to investors.

When the company experienced cash-flow problems, its owner and co-conspirators misappropriated billions of dollars they borrowed from banks, according to court papers.

Taylor, Bean & Whitaker owner Lee Bentley Farkas, of Ocala, Fla., was convicted in 2011 of bank, wire and securities fraud for defrauding investors and banks. Farkas was sentenced to 30 years in prison.

Taylor, Bean & Whitaker and Home America declared bankruptcy in 2009. The government then filed a $178 million proof of claim against TBW and a $131 million proof of claim against Home America based on the deficient loans it had insured.

Hicks and Wright asked the Federal Court in Atlanta to dismiss the remaining allegations, which included False Claims Act violations and a breach of contract claim against Hicks.

Hicks and Wright argued that they did not intend to defraud the government because TBW underwrote the loans and applied for federal insurance. What's more, they claimed, since the underwriter had filed insurance claims based on failed loans, Hicks and Wright had not caused the government's losses.

Hicks also argued that the breach of contract claim brought by his former employee was unsupported because he had never promised the whistleblower a promotion or other benefits to retain her.

U.S. District Judge Richard Story noted, however, that Home America and the individual defendants knew the loans would be insured by the government and that the information on the loan applications would be submitted to the United States. The whistleblowers could prove that Hicks and Wright knowingly made false statements for the purpose of getting government insurance for bad loans, Story said in a March 11 ruling.

The whistleblowers also brought evidence that the false information on the loans applications could have caused the United States to pay false claims even though Hicks and Wright never personally applied for government insurance for the loans, Story said.

The fact that TBW filed the claims for insurance coverage and received the insurance money for defaulted loans does not erase the other defendants' liability for making false statements, according to the 25-page ruling.

Wright, who was the closing attorney for several of the Home America loans bearing false information, failed to show he is not liable for false claims violations, the court concluded.

Story ruled, however, that a jury must decide whether Hicks was personally responsible for the alleged fraud as CEO of Home America who controlled the company and was responsible for all loan applications. The jury must also decide if Hicks used Home America as "his personal piggy bank," as alleged by the whistleblowers, the ruling states. The judge refused to dismiss the breach of contract claim against Hicks, finding that Hicks and his former employee gave divergent accounts of the purported job offer.

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