Mortgage Boss Still on Hook for False Claims

MANHATTAN (CN) - Golden First Mortgage and its owner must face claims that their lies about regulatory compliance cost taxpayers $12 million, a federal judge ruled.

The United States alleged in a 2013 complaint that Golden First and owner David Movtady "systematically violated their underwriting and quality control obligations" in loans endorsed by the Federal Housing Administration, "costing the United States millions of dollars on defaulted loans."

Golden First and Movtady tried to dismiss the lawsuit by arguing that the False Claims Act violation, as alleged, did not apply, was untimely and lacked specificity.

U.S. District Judge Jesse Furman nevertheless upheld the False Claims Act claim on Monday. A treble damages statute, it allows the government to potentially collect triple the amount of the alleged violation.

Furman did, however, dismiss the common-law claims of gross negligence, negligence and breach of fiduciary duty

A lawyer for Golden First and Movtady did not immediately return a request for comment.

FHA operates the Direct Endorsement Lender mortgage-insurance program under the oversight, or lack of oversight, of the Department of Housing and Urban Development.

"This is a civil mortgage fraud lawsuit," the complaint against Movtady states.

Golden First "has endorsed thousands of FHA loans, resulting nearly $707 million in principal obligations since 2002," which have "extraordinarily high default rates" ever since, the government said.

More than 60 percent of Golden First loans have defaulted, and at least three-quarters of those defaults occurred in 2008. In that year, more than 30 percent of its mortgages defaulted within six months, the United States said.

"In other words, borrowers defaulted shortly after closing on nearly one out of every three loans underwritten by Golden First in 2008," according to the complaint. "Indeed, of those loans that closed in 2008, approximately 60 percent defaulted within one year.

"These defaults were not happenstance, but rather resulted from Movtady's and Golden First's intentionally fraudulent practices. Movtady signed and submitted to HUD a false annual certification in order to obtain and maintain Golden First's Direct Endorsement Lender status."

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