The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG), conducted a civil fraud review of an alleged loan origination fraud scheme involving borrowers purchasing a home in which the loan was insured under HUD’s Federal Housing Administration (FHA) program. The alleged scheme involved the submission of a false loan application to obtain an FHA-insured loan on a home in San Diego, CA. FHA provides mortgage insurance on loans made by FHA-approved lenders to creditworthy borrowers to purchase one- to four-unit properties. To ensure that FHA-insured mortgage loans are made to borrowers who intend to occupy the property for at least 1 year, FHA requires a certification signed by the borrower(s).
On February 11, 2016, the HUD Office of Hearings and Appeals filed a complaint against a real estate agent and two borrowers. Specifically, the complaint alleged that a real estate agent had two borrowers falsely certify in the loan application that they intended to reside in the San Diego, CA, property as their primary residence. However, they did not live in the property or intend to do so. Instead, the borrowers deeded the property to the real estate agent, who had intended to run a group home out of the property. The group home business did not materialize, and the property went into foreclosure. The complaint further alleged that materially false statements made by the two borrowers, at the request of the real estate agent, caused the mortgage holder of the FHA-insured mortgage loan to submit a false claim to FHA for $344,925 in insurance benefits.
All three respondents have entered into settlement agreements with HUD. HUD and the respondents wished to seek a satisfactory resolution of their dispute without the expense and uncertainty of further litigation. The agreements do not constitute an admission of liability, fault, or wrongdoing by the three respondents or by HUD.