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with Charles Marshall and Bill Paatalo

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Homeowner groups are forming and lawyers are talking. We are all expecting another tidal wave of foreclosure proceedings arising from false claims against homeowners. But foreclosures impact communities, not just individuals. And communities are run by governments whose revenue is largely derived from taxes and fees on land, transfers and recording of mortgages and deeds of trust.

When government revenue declines the remaining taxpayers get to pay the balance. there is no other way. What happens if when declining revenue and increased costs are the result of false claims by private companies?

Wall Street securities firms have been sidestepping tax liability, stamps, recording fees and even income tax as they freely pretend to transfer mortgages while no money exchanges hands. The courts treat the transfers as real even though the law says no transfer of a mortgage can be completed without a transfer of ownership of the underlying debt.

So if it is real why is state and local government not receiving their fair share of revenue as prescribed by law? And why does state and local government get stuck with the bill on Zombie foreclosures?

More lawyers are looking at qui tam actions, mass joinder, and actions against regulatory capture that interfere with homeowners’ right to counsel and access to the courts.

Qui Tam Actions generally are lawsuits in which an individual sues on behalf of a governmental entity, typically the Federal Government, with the goal of remedying a defrauding of the government by a private organization or individual. These actions typically take the form of a whistleblower exposing the defrauding actions of his or her employer. Qui tam actions in the US are often brought under the False Claims Act, a Federal law specifically empowering individuals to sue as whistleblowers to recover private funds garnered through defrauding the Federal Government.

In the foreclosure context, individuals who are connected with, or in some cases simply apprised of, the defrauding behavior, can then bring a qui tam action to remedy the fraud. As a whistleblower, the suing individual is entitled to substantial compensation, including penalties, attorney’s fees, court costs, on top of the disputed amount of the fraud. The whistleblower receives his or her compensation as a percentage of the fraud money recovered. This amount can and often does run into the millions of dollars, depending on the nature of the fraud and the amount in dispute. Bill will highlight a recent successful qui tam action and address previous qui tam matters, involving for example mortgage servicers such as Nationstar.

Filed under: foreclosure |