Trial date for DOJ case against reverse mortgage lender delayed to 2024

The trial, previously scheduled for next year, will move to 2024 to accommodate discovery requests from both parties

A trial stemming from a complaint by the U.S. Department of Justice (DOJ) against a reverse mortgage lender which was originally scheduled to go to trial next year has been pushed to 2024, with both parties citing issues in the discovery process caused by the COVID-19 pandemic as well as other logistical hurdles related to accessing relevant data to the case according to court documents obtained by RMD.

The DOJ filed a suit in late 2020 alleging that reverse mortgage lender Nutter Home Loans forged certifications and used unqualified underwriters to approve Federal Housing Administration (FHA)-backed Home Equity Conversion Mortgage (HECM) loans originated between 2008 and 2010. The process for the case has been administratively paused to allow both parties to gather the necessary documents and information for the case.

Prior motions, a COVID pause

The initial complaint by the DOJ was filed in September of 2020 under the purview of both the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the False Claims Act (FCA), after being investigated by the Commercial Litigation Branch of the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the District of Columbia, HUD, and HUD’s Office of Inspector General (OIG).

When checking in on the progress of the complaint at the end of 2020, RMD learned that the case had changed venues from the District of Columbia to the Western District Court of Missouri, and attorneys for Nutter had since filed a motion to dismiss the case. That motion was denied, however, and presiding Judge Roseann A. Ketchmark proposed a lengthy scheduling process beginning with discovery commencing in April 2021, and ending with a jury trial which was slated to begin on August 21, 2023.

However, the COVID-19 coronavirus pandemic and issues associated with the aging state of the needed information by both parties has necessitated a further delay, according to attorneys for both DOJ and Nutter Home Loans.

“The reason for the delay and our request for an extension is a lot tied up in what has been going on the last two years with COVID and shutdowns,” said Christopher R. B. Reimer, an attorney with DOJ’s civil division at a hearing earlier this year. “Many of these documents, based on the age of this case, are paper documents, and from the government’s perspective, many of those paper documents are stored offsite in large archives […]. So it took us a while to get that process started.”

As of the point of the hearing, most of the paper documents sought out by the government have been located, and it was anticipated that the dissipation of lockdown orders and travel restrictions will help make the process of discovery much easier going forward, he explained. Attorneys for Nutter largely concurred.

“We don’t disagree with the complexities that Mr. Reimer has identified,” said Kelley C. Barnaby, an attorney serving on the defense team for Nutter. “This case is also from an older time period so even on the electronic front has involved accessing data that isn’t in as accessible of a state as more recent data is. So there’s just been additional complexities, and I think the parties are working productively to move things forward, especially now that some of those hurdles have been overcome.”

New dates in the trial, history

One day after the hearing, Judge Ketchmark granted the requested motions to adjust the case’s timeframe and “close” it for administrative purposes related to automatic deadlines. Now, pretrial conferences will be conducted in February and March of 2024, with a jury trial scheduled to commence on March 11. Discovery will now be due on November 18, 2022, a delay of seven months from the previous discovery deadline.

The filings with the court since this decision was handed down have all been procedural in nature, according to records reviewed by RMD. Last year, Nutter aimed to illustrate that a provision relating to intra-governmental information disclosure should not be allowed be allowed, alleging 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. Ketchmark in September 2021.

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 after the initial complaint was filed in late 2020. “This complaint is evidence that we will tirelessly investigate allegations of abuses of the HECM program by FHA lenders.”

According to legal counsel for Nutter Home Loans, the complaint from the government constitutes an “improper attempt by HUD to rewrite and recast its own ambiguous and patchwork guidelines ten years after the fact,” according to Edward T. Kang, a partner in the D.C. office of Alston & Bird LLP, who is defending the company in this action.

“Allowing the case to move forward would allow the Government to seek an improper windfall and recover damages on insurance payments for loans that the Company properly originated for borrowers who were eligible and qualified for the HECM program,” Kang told RMD in a 2021 statement.

A later statement from Kang indicated that the company is looking forward to making its case.

“The company looks forward to its opportunity to present facts that will demonstrate that the allegations in the complaint are inaccurate and that the government cannot meet its burden of proof,” Kang told RMD in a statement soon after the denial of the dismissal motion.

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 mentioned the government’s case against Nutter Home Loans and another case against a different HECM lender as evidence of its commitment to enforcement.

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