Whistleblowers Win $46.5M In Foreclosure Settlement
Nation's 5 Largest Mortgage Lenders Part Of Settlement
POSTED: 3:12 am MDT July 2, 2012
UPDATED: 4:27 am MDT July 2, 2012
NEW YORK (CNNMoney) -- Getting served with foreclosure papers made Lynn Szymoniak rich.While
she couldn't have known it at the time, that day in 2008 led to her
uncovering widespread fraud on the part of some of the country's biggest
banks, and ultimately taking home $18 million as a result of her
lawsuits against them.Szymoniak is one of six Americans who won
big in the national foreclosure settlement, finalized earlier this year,
as a result of whistleblower suits. In total, they collected $46.5
million, according to the Justice Department.
In the settlement, the nation's five
largest mortgage lenders --Bank of America, Wells Fargo,JPMorgan,
Citigroup and Ally Financial -- agreed to pay $5 billion in fines and
committed to roughly $20 billion more in refinancing and mortgage
modifications for borrowers.A judge signed off on the agreement in April, and in May -- Szymoniak received her cut."I
recognize that mine's a very, very happy ending," she said. "I know
there are plenty of people who have tried as hard as I have and won't
see these kinds of results."Whistleblower suits stem from the
False Claims Act, which allows private citizens to file lawsuits on
behalf of the U.S. when they have knowledge that the government is being
defrauded. These citizens are then entitled to collect a portion of any
penalties assessed in their case.The act was originally passed
in 1863, during a time when government officials were concerned that
suppliers to the Union Army during the Civil War could be defrauding
them.In 1986, Congress modified the law to make it easier for
whistleblowers to bring cases and giving them a larger share of any
penalties collected. Whistleblowers can now take home between 15% and
30% of the sums collected in their cases.In the cases addressed
in the foreclosure settlement, the whistleblowers revealed that banks
were gaming federal housing programs by failing to comply with their
terms or submitting fraudulent documents.In Szymoniak's case
alone, the government collected $95 million based on her allegations
that the banks had been using false documents to prove ownership of
defaulted mortgages for which they were submitting insurance claims to
the Federal Housing Administration.The FHA is a self-funded
government agency that offers insurance on qualifying mortgages to
encourage home ownership. In the event of a default on an FHA-insured
mortgage, the FHA pays out a claim to the lender.Szymoniak's case
was only partially resolved by the foreclosure settlement, and she
could be in line for an even larger payout when all is said and done.As
an attorney specializing in white-collar crime, the 63-year-old
Floridian was well-placed to spot an apparent forgery on one of the
documents in her foreclosure case, one she saw repeated in dozens of
others she examined later."At this point, the banks are
incredibly powerful in this country, but you just have to get up every
morning and do what you can," she said.The other five
whistleblowers in the settlement came from the industry side, putting
their careers at risk by flagging the banks' questionable practices.Kyle
Lagow, who won $14.6 million in the settlement, worked as a home
appraiser in Texas for LandSafe, a subsidiary of Countrywide Financial.
He accused the company in a lawsuit of deliberately inflating home
appraisals in order to collect higher claims from the FHA, and said he
was fired after making complaints internally.Gregory Mackler, who
won $1 million, worked for a company subcontracted by Bank of America
to assist homeowners pursuing modifications through the government's
Home Affordable Modification Program, or HAMP. Under HAMP, the
government offers banks incentive payments to support modifications.Mackler
said Bank of America violated its agreement with the government by
deliberately preventing qualified borrowers from securing HAMP
modifications, steering them toward foreclosure or more costly
modifications from which it could make more money. He, too, claims to
have been fired after complaining internally.There's also Victor
Bibby and Brian Donnelly, executives from a Georgia mortgage services
firm who accused the banks of overcharging veterans whose mortgages were
guaranteed by the Department of Veterans Affairs, thereby increasing
their default risk. Bibby and Donnelly won $11.7 million in the
settlement; their attorneys did not respond to requests for comment.Shayne
Stevenson, an attorney who represented both Lagow and Mackler, said the
two weren't aware of possible rewards when they first brought their
evidence to his firm."The reality of it is that most of the time,
whistleblowers don't even know about the False Claims Act -- they don't
know they can make money," Stevenson said. Both his clients, Stevenson
added, "just wanted the government to know about this fraud, so they
deserve every penny that they got."A Bank of America spokesman
declined to comment on individual cases, but said the national
settlement was "part of our ongoing strategy to put these issues,
particularly these legacy issues with Countrywide, behind us." BofA
acquired mortgage lender Countrywide in 2008, thereby incurring the
firm's legal liabilities.The other banks involved either declined to comment or did not respond to requests for comment.While
the whistleblowers in the settlement scored big paydays in the end, the
road wasn't easy. Stevenson said his clients "were pushed to the brink"
after raising their concerns, struggling to find work and beset by
financial problems."They were facing evictions, foreclosure,
running away from bills, trying to deal with creditors that were coming
after them," Stevenson said. "This went on and on and on, and this is
part and parcel of what happens to whistleblowers."For Robert Harris, a former assistant vice president in JPMorgan's Chase Prime division, the experience was similar.Harris
accused the bank of failing to assist borrowers seeking HAMP
modifications and knowingly submitting false claims for government
insurance based on wrongful foreclosures. He was stymied when he tried
to complain internally, and says he was fired for speaking out.While
Harris ended up with a $1.2 million payout in the settlement, the
father of five says he's been blacklisted within the industry and
exhausted by the ordeal."It completely turned my life upside
down," he said. "I'm trying to raise my kids, recover from a divorce,
recover from the loss of my career -- it just comes to down to surviving
and putting this to an end.""I guarantee the other
whistleblowers, too, have sacrificed a lot," he added. "But to be able
to sit back and sleep at night is worth it."
Copyright CNN 2012
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