Hayward Ferrell of Huber Heights, Ohio has initiated an innovative lawsuit against U.S. Bank, a division of U.S. Bancorp, one of the largest banks in the country. This lawsuit is related to a popular type of government-guaranteed mortgage that in fact requires banks to take distinct step if a borrower stops making payments.
In Ferrell’s case, when he fell behind on his mortgage payments, U.S. Bank made no effort to try to work out a payment plan but instead foreclosed on his house.
“They never sat me down and said, ‘It looks like you are going to lose this, so why don’t you do this?” he said. “They never did that.”
While this does not seem a sufficient reason for litigation against one of the biggest banks in the country, the lawsuit will eventually mean legal problems for other mortgage banks as well. It is also the latest in a barrage of cases that have forced banks to pay significant penalties in recent months.
The lawsuit is being handled by Advocates for Basic Legal Equality, a legal aid group. The group is suing the bank in federal court in Ohio and is using the False Claims Act that allows private citizens and groups to use legal action against companies and other entities for receiving payments from the government on false grounds.
The lawsuit will focus on mortgages guaranteed by the Federal Housing Administration (FHA). The FHA backs approximately $1.2 trillion worth of loans. According to the legal aid group, the U.S. Bank used false claims to collect payments from the FHA. They did not fulfil the agency’s requirements that banks should take certain steps to work out payment arrangements before declaring that the borrower is in default.
In the lawsuit, it is being claimed that U.S. Bank made 22,586 claims to the FHA between 2001 and 2011 and received nearly $2.37 billion in payments. As per the argument, a large proportion of these claims did not meet FHA requirements related to dealing with borrowers.
According to Andrew Neuhauser, a lawyer for Advocates for Basic Legal Equality, “I’ve been representing homeowners in foreclosure for seven years and I’ve never seen a case when U.S. Bank complied with these regulations.”
While the legal aid group is quite aggressive in its claims, the Justice Department has declined to join the legal action. U.S. Bank is seeing this as a positive sign and is confident that the civil action is without any merit.