The presiding judge in a case between reverse mortgage lender Nutter Home Loans (formerly known as James B. Nutter & Co.) and the U.S. federal government has accepted an argument from the Department of Justice (DOJ) to allow for intragovernmental agency collaboration in providing information relevant to the case, and the government’s efforts against Nutter. This is according to court documents obtained by RMD.

In the initial complaint which was filed by DOJ against the lender last fall, the Department alleges that Nutter forged certifications and used unqualified underwriters to approve Federal Housing Administration (FHA)-backed Home Equity Conversion Mortgage (HECM) loans originated between 2008 and 2010 in an effort to bolster its production of reverse mortgage loans.

Additionally in July, Nutter filed a response to the government which denied “a substantial portion of both the Government’s legal claims and the factual bases for those claims,” according to a court filing obtained by RMD. That reply also included 25 affirmative defenses, of which the government is currently seeking to eliminate 14.

Judge accepts government’s argument for intra-agency collaboration

The issue at hand is whether a provision relating to intra-governmental information disclosure should be allowed. Nutter has alleged that the process — if any — for intragovernmental sharing of information is unwarranted, and could present an unfair advantage to the government in its case.

“After review of the parties’ argument and balancing the asserted interests, the Court finds at this juncture that the language proffered by the Government allowing for intragovernmental sharing of information is warranted,” ruled Judge Roseann A. Ketchmark.

Defenses filed by Nutter and government opposition

Among the 25 affirmative defenses filed by the lender in response to the initial complaint, many are being made on functionary legal grounds, such as the government “failing to state a claim upon which relief can be granted to Nutter,” and that the claims against the lender are “barred by the doctrines of waiver, estoppel, abandonment, consent, ratification, judicial estoppel, accord and satisfaction, and/or res judicata.” Nutter also contended in one defense that many of the transactions at the heart of the complaint had themselves already been approved by the government at the time they were created.

The following month, however, the government filed a reply to Nutter’s introduction of the affirmative defenses, taking issue with 14 of the 25 presented which ranged from an attempt to invalidate the company’s perspectives on the legal mechanisms at work, in addition to challenging the position of Nutter in interpreting legal regulations, requirements and precedent. In terms of the idea that the government had already approved the transactions at the heart of the dispute, the government contends that HUD in and of itself does not have the authority to recover a civil penalty; only the Attorney General of the United States under the auspices of DOJ has such authority. This renders the cited defense by Nutter moot, the government argues.

The government also takes issue with a defense that contends that the United States “did not incur any damages” from the allegations, responding that such a standard is not the basis for a violation of the False Claims Act (FCA) nor the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which are two bases upon which the government is pursuing action against the lender.

Counsel for Nutter also contends in one affirmative defense that “the Government’s claims are barred, in whole or in part, by the doctrine of unclean hands and unjust enrichment,” which the government counters by saying that the lender provides no factual bases for such a defense and that the argument is undercut by saying that laws passed by Congress cannot be used against the United States if such an argument is made in an effort to prevent the government from enforcing law.

Nutter quickly filed a response in opposition to the government’s efforts to strike such affirmative defenses, saying earlier this month that “the Government’s arguments regarding Nutter’s affirmative defenses are not legally supported, and furthermore are premature. […] The Government’s Motion should be denied, and Nutter’s affirmative defenses should not be stricken.”

The judge has yet to respond to the issue of the affirmative defenses.

Next steps, recent history

A representative for the U.S. Attorney’s Office for the District of Columbia previously advised RMD that ongoing policy is not to comment on pending litigation, though the representative did confirm previously that a trial date has been set. No additional notices or statements by the attorneys representing the government in this case have been filed as of press time. Previously, Judge Ketchmark proposed a lengthy scheduling process which began with discovery commencing in April 2021, and ending with a jury trial which as of now is slated to begin on August 21, 2023.

The allegations, if true, would do damage to the financial viability of the HECM program inside the Mutual Mortgage Insurance (MMI) Fund, and this action signals that the federal government takes seriously any threat to the integrity of the HECM program, according to HUD Inspector General Rae Oliver Davis.

“Lenders who willfully disregard FHA requirements for HECM loans expose the program to significant financial losses that threaten the future availability of this important program to seniors,” said Davis in September 2020. “This complaint is evidence that we will tirelessly investigate allegations of abuses of the HECM program by FHA lenders.”

In December 2020, roughly one month prior to the inauguration of President Joe Biden, then-HUD Secretary Dr. Ben Carson and then-HUD Chief Financial Officer (CFO) Irv Dennis in consultation with the HUD OIG released a report that made mention of the government’s case against Nutter Home Loans and another case against a different HECM lender as evidence of its commitment to enforcement.