A nationwide class of home buyers have accused Bank of America, Countrywide Financial and appraisal firm LandSafe of conducting fraudulent appraisals in an attempt to generate more loans at higher values. A federal lawsuit was filed in Los Angeles, California on Thursday arising from previously settled whistleblower claims. Interestingly, this case alleges that under the Racketeer Influenced and Corrupt Organization Act (RICO) that criminal conduct occurred. RICO findings would mandate fines, criminal penalties and possible imprisonment.
Home buyers in California and Florida allege that Countrywide, now owned by Bank of America, used its wholly-owned appraisal firm LandSafe to defraud loan applicants in violation of the Racketeer Influenced and Corrupt Organizations Act. It is believed that this lawsuit stems from a federal whistle-blower that resulted in a $16.65 billion civil settlement with Bank of America.
In that case there were four whistle-blowers who were former employees of LandSafe. One whistleblower in that case received a payment of $56 million out of the 16.65 billion that Bank of America agreed to pay to settle claims arising from Bank of America’s lending and mortgage securitization business. The specific terms of the settlement remain under government seal.
Despite findings of fraud and a steep financial penalty, the Federal Bureau of Investigation and federal prosecutors failed to file criminal charges against the wrong-doers. The effect of sealing the case documents also kept the public (taxpayers) in the dark in regards to the extent and criminal nature of the criminal scheme.
The only information about the settlement that was provided was that Bank of America had systematically overvalued distressed residential properties held on its balance sheet, much of the transactions occurring after the 2008 financial crisis. The whistleblowers also alleged that Bank of America deliberately utilized “improper appraisal practices” that overstated the value of the homes backing Bank of America’s portfolio of nonperforming loans by $6.6 billion.
The case was filed under a “qui tam” action under the federal False Claims Act, which is intended to help protect jobs of potential whistle-blowers who assert that they have claims of fraud against the federal government. This isn’t the only case alleging widespread rackeetering practices within the Bank of America- Countrywide merger. Prosecutors have repeatedly found violations that these two banks were focused on the quantity of loans they could close, not the quality of those loans that would be passed on to unsuspecting investors.
Interesting this case does not appear to allege illegal securitization practices tied to faulty mortgage backed securities but instead the “systemic misrepresentation” of property appraisals and valuations that resulted in the banks appearing to be more profitable and financially stable than they actually were. Of course, this type of widespread fraud was, and continues to be endemic to the entire mortgage generating industry among the large banks. Therefore, to date, the take away message has been, “if everyone is doing it, and it is the industry standard, then no one should go to jail.”
Once the case is identified, more information will be provided.
Filed under: foreclosure