Banks, Mortgage Companies Defrauded HUD, Veteran Whistleblower Says

Lynn Szymoniak helped the government recover $95 million from the top five mortgage servicers as part of the national mortgage settlement. She personally received $18 million.

A whistleblower with a track record of wresting large settlements from banks is suing 22 companies for allegedly filing fraudulent mortgage documents with the Department of Housing and Urban Development.

Lynn E. Szymoniak, famous for her 2011 “60 Minutes” interview on the robo-signing scandal, filed a lawsuit late Monday against the companies, including Deutsche Bank, Wells Fargo, JPMorgan Chase and Bank of America. The Palm Beach, Fla., plaintiff’s lawyer alleges the 22 banks, mortgage servicers, trustees, custodians and default management companies created fraudulent mortgage assignments and submitted tens of thousands of false claims to HUD.

The lawsuit is a stark reminder that banks still face massive litigation and potential settlements for wrongdoing from the mortgage boom and financial crisis. On Wednesday, JPMorgan Chase acknowledged that it violated the False Claims Act and agreed to pay $614 million to settle claims that it improperly approved Federal Housing Administration and Veterans Affairs loans that did not meet underwriting standards.

HUD oversees the FHA, which reimburses servicers for losses and fees when government-guaranteed loans go into foreclosure.

Banks can be held liable for treble damages under the False Claims Act if they are found to have "falsely certified" that mortgages met all FHA requirements. The act also gives whistleblowers the right to file suit on behalf of the government.

“It’s been very difficult to uncover how fraudulent documents were created and spread through the system,” says Reuben Guttman, Szymoniak’s attorney at the firm of Grant & Eisenhofer. “Lynn Szymoniak did the original analysis, looked at documents and put the pieces together in a way that nobody else did.”

The new lawsuit was filed in the U.S. District Court in South Carolina. Several of the defendants, including Deutsche Bank and Wells Fargo, said they are reviewing the lawsuit and could not immediately comment.

In 2012, Szymoniak helped the government recover $95 million from the top five mortgage servicers, as part of the $25 billion national mortgage settlement. She personally received $18 million for providing information on the filing of false claims on FHA loans.

The suit also seeks to recover damages and penalties on behalf of the federal government, 16 states, the District of Columbia and the cities of Chicago and New York for the financial harm incurred in the purchase of private-label mortgage-backed securities that allegedly used fraudulent documents in foreclosure filings since 2008.

As investors in mortgage bonds, the government and others paid fees and expenses for services such as reviewing all mortgage documents put into trusts that were supposed to be performed by trustees. The federal government bought mortgage-backed securities with missing or forged documents through several avenues, including the Federal Reserve's direct purchases and Maiden Lane vehicles, and the Treasury Department's purchases through public-private partnership investment funds, the suit states.

The complaint does not specify damages but Szymoniak says she expects them to total around $10 billion.

The fraudulent mortgage documents were created because the original loans documents either were never delivered to the securitization trusts, or they were lost or destroyed, the lawsuit states. Many of the documents were created years after the trusts’ closing dates and showed the trusts acquired the loans only after they were in default.

Servicers “devised and operated a scheme to replace the missing documents,” the lawsuit states, and to conceal the fact that the trusts and servicers never actually held the mortgage notes and assignments, which are needed to initiate a foreclosure.

Szymoniak was also instrumental in uncovering fraud and forged documents at DocX, a now-defunct subsidiary of Lender Processing Services. She worked with the Federal Bureau of Investigations and U.S. Attorney's office in Jacksonville, Fla., that ultimately led to the conviction of an LPS executive, the closure of DocX, firm, and various settlements by LPS, which is now owned by Black Knight Financial Services.

Comments (6)
Does it matter what Szymoniak motive is if it recovering $10 billion in taxpayer dollars, and the rules are 10-30% of the recovered amount is the award. Now it seem if Ms Szymoniak will have to give that money she got the first time to her client that she lifted information from his case!

But on the other side she did make it happen for a $25 million foreclosure settlement that was suppose to go to a lot of people. So what the problem which how much she get or people get if we are getting back stolen money?
Posted by Charles R | Friday, February 07 2014 at 7:32PM ET
Well I wonder how much Szymoniak will make on this case?--18Million on robo signing case was paid to her--Makes you wonder where her real interest lies--
Posted by philip h | Thursday, February 06 2014 at 9:53PM ET
Yes I m going to a situaction now ji just find out that us bank did not have an assigment when they star my foreclosure case .ii still have my house but because I have a final judment I cannot fight the case because a judge in miami said that is was to late .please I need help I can not find an attorney call me at 7863126196
Posted by Bert's C | Thursday, February 06 2014 at 6:42PM ET
Who put Szymoniak of this case of fraud against HUD was me. I already submitted the whistle-blower claim to the SEC first in Aug 2011 and refiled it in Feb 2012.
Posted by Charles R | Wednesday, February 05 2014 at 11:27PM ET
Well Done Lynn. JohnR
Posted by John R | Wednesday, February 05 2014 at 11:00PM ET
How about getting her to run for President?
Posted by Dottie | Wednesday, February 05 2014 at 4:09PM ET
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