Appraisers Voluntarily Dismiss Mortgage Origination FCA Lawsuit Against Bank

A real estate appraiser and an appraisal consultant have voluntarily dismissed the qui tam lawsuit they had brought under the False Claims Act, following the government’s decision not to intervene in the case.

The qui tam relators had alleged that the bank, a Direct Endorsement Lender in the FHA mortgage insurance program, used inflated appraisal values when originating FHA-insured loans.  The relators also alleged that the bank used inflated appraisal values when originating loans that it later sold to government-sponsored enterprises, Fannie Mae and Freddie Mac (GSEs).  The relators alleged that the bank permitted its loan officers to request appraisers to assign specific appraisal values, which were inflated to make loans eligible for FHA insurance and for purchase by the GSEs.  The relators further alleged that FHA-insured loan defaults and GSE loan purchases and guarantees resulted in losses to the government.

In cases brought by qui tam relators under the False Claims Act, the government has the right to intervene to assume primary responsibility for prosecuting the action.  On January 28, 2019, however, the government chose not to intervene in the relators’ case against the bank.  The complaint, originally filed under seal, was unsealed on March 5.  The relators filed a notice of voluntary dismissal without prejudice just nine days later, on March 14, presumably because the government declined to intervene.  On March 20, the government consented to the dismissal, indicating that it did not intend to pursue the matter at this time. 

The case is United States of America ex rel. Cote v. Citizens Bank, N.A., No. 1:16-cv-03121, in the U.S. District Court for the Southern District of New York.