A trial date has been set for a dispute stemming from a complaint filed by the U.S. Department of Justice (DOJ) against reverse mortgage lender Nutter Home Loans (formerly known as James B. Nutter & Co.), stemming from a complaint filed by DOJ against the lender last fall. This is according to court documents obtained by RMD, as well as statements shared by representatives for DOJ and legal counsel for the lender.

As the DOJ alleges in the original complaint filed last year, Nutter allegedly 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.

Representatives for Nutter continue to deny the allegations as devoid of sufficient evidence to prove the government’s claims, while the government contends that it has made a sufficient case for the process to continue to trial.

Change of venue, recent movement

The initial complaint by the DOJ was filed in September of 2020, and RMD’s coverage of the filing of the complaint became one of our publication’s most-read stories of 2020. The complaint was initially filed by the DOJ under the purview of both the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the False Claims Act (FCA).

The issue which prompted the complaint was 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 in December, 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.

Company response

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 statement. “The Company believes that these efforts by the Government to engage in ‘Monday morning quarterbacking’ will be rejected.”

The company’s motion to dismiss the case is still pending according to Kang, and also details why the government’s complaint is baseless, he explains.

“[T]he complaint fails to sufficiently allege a single statement made by the Company that was false at the time it was made,” Kang told RMD. “The motion also notes that HUD had numerous opportunities to stop paying the Company on insurance claims if the Government legitimately believed those claims to be false.  But the Government never stopped making such payments, contradicting any suggestion that the allegedly false claims were material, or important, to HUD’s decision to pay.”

Nutter also contends in its motion to dismiss that “the Government has not alleged, nor can it prove, that the Company knowingly submitted false claims to HUD,” Kang said. While the company believes its motion to dismiss the case should be granted, the company “intends to vigorously defend itself in this case, through trial if necessary,” Kang explained.

Government response

A representative for the U.S. Attorney’s Office for the District of Columbia advised RMD that ongoing policy is not to comment on pending litigation, though the representative did confirm that a trial date has been set and that the dismissal motion from Nutter remains pending. However, the government did file a response in opposition to the dismissal motion in the Western District Court of Missouri, which was obtained by RMD.

“Contrary to Nutter, the United States pled the elements of its FCA causes of action with the requisite plausibility and particularity required by the Rules,” the government said in its opposition to the dismissal motion. “The United States’ detailed 269 paragraph Complaint clearly satisfies the pleading standard to provide Nutter notice of the allegations underlying the United States’ FCA claims with the requisite particularity.”

The government claims that its complaint substantively establishes the “who,” “what,” “where,” “when” and “how” behind the alleged violations, and that the company’s claims of a lack of detail are themselves insufficient.

“In its Brief, Nutter argues that the Complaint is somehow not detailed enough and that the allegations in it do not state legally cognizable claims,” the government says in its opposition. “In so doing, Nutter ignores the many decisions rejecting its very arguments in FCA cases brought by the United States across the country against lenders who committed underwriting fraud on the FHA program.”

Judge Roseann A. Ketchmark has proposed a lengthy scheduling process beginning with discovery commencing in April 2021, and ending with a jury trial which is slated to begin on August 21, 2023.

History

The allegations, if true, would do damage to the financial viability of the HECM program inside the Mutual Mortgage Insurance Fund (MMIF), 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. “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.