A judge has dismissed a lawsuit that American Home Mortgage Servicing Inc. filed against the U.S. Department of Housing and Urban Development and HUD Secretary Shaun Donovan, but left the window open for AHMSI to refile. AHMSI alleges in the lawsuit that HUD has failed to pay Federal Housing Administration insurance proceeds on 161 FHA-insured mortgages that defaulted. AHMSI was the servicer on the loans and conveyed the foreclosed homes to HUD. But American Home Mortgage says HUD took the foreclosures and sold or otherwise disposed of them, but didn’t process, pay or deny the insurance benefit claims that AHMSI submitted. AHMSI sued HUD in September 2010 alleging HUD had no right to retain the collateral or insurance proceeds. U.S. District Judge Barbara Lynn of the Northern District of Texas ruled AHMSI lacked standing and jurisdiction in the case. AHMSI lacked standing because it was the mortgage servicer, and FHA has no obligation to deal with any party "other than the mortgagee of record with respect to the rights, benefits and obligations of the mortgagee under the contract of insurance," according to Lynn's memorandum of opinion and order in the case. "The regulations allow mortgagees to employ mortgage servicers," she writes. "AHMSI does not allege or prove that it is an assignee, that its contract with the mortgagee amounts to an effective assignment, or that the NHA (National Housing Act) and its accompanying regulations require HUD to recognize AHMSI as such. In light of those failures, AHMSI has not proven it has standing." Lynn also ruled that AHMSI failed to adequately prove sovereign immunity and agency finality, requirements for a suit against the government. "HUD's Secretary has the right to hold applications for insurance benefits for a reasonable time to permit the mortgagee to comply with FHA regulations," the judge wrote. "AHMSI's bare assertion that HUD's action is final is unsupported." Lynn left open the opportunity for AHMSI to amend its complaint within 21 days of her ruling, which came out on July 21. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.