Dallas – In her chapter, “The Evolving Definition of Mortgage Fraud: Analyzing the Changes in Interpretation Through Court Decisions and Legislation Since the Subprime Mortgage Crisis,” Thompson & Knight Partner Jennifer R. Ecklund discusses what constitutes mortgage fraud and the increase in the use of the civil money penalty provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) and the False Claims Act (“FCA”) by the United States Department of Justice (“DOJ”) to investigate and pursue financial institutions for reckless lending practices rising to the level of financial fraud. The article was published in the 2014 edition of Mortgage and Finance Fraud Litigation Strategies, a publication of Inside the Minds™.
According to the article, “the Federal Bureau of Investigation defines ‘mortgage fraud’ as ‘a material misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, purchase, or insure a loan.’” The author states, “a subset of fraud exists on which the DOJ has been particularly focused – civil fraud perpetuated by large financial institutions, accused of reckless mortgage-lending based on failure to catch the mortgage and financial fraud of consumers or customers.”
The article explains that “due to its lengthy statue of limitations, limited burden of proof, and provisions authorizing the issuance of subpoenas, FIRREA has proven to be the DOJ’s favorite new tool to pursue litigation against large financial institutions” and “presently, the likelihood of success maintaining these actions favors the government.” Only district courts have addressed the current issues of FIRREA and FCA, so “it is likely that the circuits will ultimately weigh in.” Ecklund continues, “in line with its purpose to increase enforcement of financial fraud, The Fraud Enforcement and Recovery Act of 2009’s (“FERA”) changes to the FCA have made the FCA a more useful tool to the DOJ.”
She concludes, “FIRREA, the FCA, and FERA all create additional liability for financial institutions that do not do enough to ferret out and prevent consumer frauds. Thus, financial institutions should be aware of the growing trend and increase quality controls to avoid claims in the future.” The author encourages institutions to “focus on compliance and ensure that they supplement their existing programs with rigorous quality control initiatives.”
Ecklund is a Partner in Thompson & Knight’s Trial Practice Group in Dallas. She focuses her practice on cases in securities fraud, health care fraud, tax fraud, and mortgage fraud, as well as matters related to Ponzi schemes and resulting receiverships.