How to Defend Yourself in a Mortgage Loan Fraud Lawsuit

If you make mortgage loans, then a borrower could accuse you of fraudulent or predatory practices. In order to defend yourself, you need the help of an experienced attorney. Mortgage loan fraud is a serious offense, and the sooner you start building your defense the better. To start, read the plaintiff's complaint closely and identify the practices which are allegedly fraudulent. Then gather relevant documents and prepare to meet with your lawyer.

Part 1

Part 1 of 3:

Responding to the Lawsuit

1
Read the complaint. The borrower will start the lawsuit by filing a complaint or petition in court. This document will explain the factual allegations surrounding the lawsuit. The borrower who filed the lawsuit is called the “plaintiff.”
- In some situations the United States government will sue as plaintiff.^{[1]XResearch source} These cases are particularly serious, since the government is usually seeking much more money than a single borrower would.
- The plaintiff should send you a copy of the complaint, along with a summons. The summons will tell you how much time you have to respond to the lawsuit.
2
Pay close attention to all deadlines. If you don't meet the deadline for responding to the lawsuit, then the plaintiff could get a default judgment against you. This means that the plaintiff can win the lawsuit without you ever having a chance to come into court and defend yourself.
- To protect against a default judgment, start planning your defense immediately and write down the deadline for filing your response.
3
Identify the fraudulent or predatory practice. Borrowers can sue for a variety of mortgage lending practices that harm them. Go through the complaint and identify which practices the plaintiff alleges you used. Common fraudulent or predatory practices include:^{[2]XResearch source}
- Encouraging applicants to lie on their applications, e.g., to lie about their income or expenses.
- Convincing borrowers to refinance a loan many times and increasing the payments each time.
- Charging fees for nonexistent products or for excessive costs. For example, you include hidden clauses which require the borrower to pay broker fees regardless of whether a mortgage ever closes.
- Failing to include Truth in Lending statements, Good Faith Estimates, and a Special Information Booklet.
- Pressuring borrowers in an aggressive manner to take out higher-risk loans. These loans can include balloon loans, interest-only payments, and loans with high pre-payment penalties.
- Using a false appraisal to sell a property for more than it is worth.
- Targeting a borrower knowingly with an offer to refinance their property when you know the borrower needs cash for reasons related to debt, medical issues, or unemployment.
4
Gather relevant documents. To build your best defense, you need to review all documents related to the borrower and the mortgage loan. Go through your files and copy all paperwork that relates to the plaintiff. Get the following:^{[3]XResearch source}
- the mortgage application
- the appraisal on the property
- HUD settlement sheets
- IRS Form 4506 (which authorizes the release of prior tax returns)
- verification of employment paperwork
- verification of deposits
- a title opinion
- mortgage documents and deeds
- your notes during any meeting
- any communications related to the plaintiff (such as emails to colleagues or letters to the plaintiff)
5
Contact your lawyer. You should quickly contact your attorney. If you work for a large bank or mortgage company, then you should have general counsel on staff. Call and schedule an appointment.
- Smaller businesses often keep a lawyer “on retainer.” This means that your business pays the lawyer a monthly fee in exchange for the lawyer always being ready to help you.^{[4]XResearch source} Ask a supervisor if you keep a lawyer on retainer.
- If you need to hire a lawyer, then ask other businesses in your industry if they would recommend their attorney.
6
Come up with your defenses. You should work closely with your lawyer to come up with your best defenses. In a mortgage loan fraud lawsuit, you have several defenses:
- Your best defense is that you did not engage in any fraudulent or predatory practices. For example, if you have been accused of encouraging borrowers to lie about their incomes, then you can defend yourself by showing how you double-checked the borrower's income and refused to approve applications where the income was inadequate.
- You can also argue that although loan documents contain errors, those errors were not significant. The legal term is that they were not “material” to the decision whether to offer a mortgage loan or not.
- You can also have a lawsuit dismissed if the plaintiff waited too long to sue. A “statute of limitations” is the amount of time that a plaintiff has to bring a lawsuit. In the context of mortgage loan fraud, there are different statute of limitations depending on what law the plaintiff sues under. For example, some federal laws give the government 10 years to bring a lawsuit.^{[5]XResearch source}
7
Draft an answer. Your lawyer will formally respond to the lawsuit by drafting an answer. In the answer, you go through each allegation in the complaint and either admit, deny, or claim insufficient knowledge to admit or deny each allegation.^{[6]XResearch source}
- You can also raise any defense, e.g., the statute of limitations has expired.
Your lawyer will file the answer in court. The plaintiff must also be sent a copy of your answer.^{[7]XResearch source}
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Part 2

Part 2 of 3:

Resolving the Dispute outside Court

1
Consider settlement negotiations. It might be in your best interest to settle the dispute outside of court. For example, if you are being sued for a lot of money, then you run the risk of losing at trial. However, the plaintiff might be willing to settle the dispute for a fraction of what she is seeking in the lawsuit.
- During settlement negotiations, you and the plaintiff will meet with your lawyers to see if you can hammer out a deal. Negotiations involve giving up something to get something in return. You are unlikely to leave negotiations without having to pay the plaintiff money.
- If it is important for you that a court clear you of any wrongdoing, then you might not want to negotiate. However, be aware that successful negotiations can make the lawsuit go away much faster than a trial.
2
Prepare for negotiations. Your lawyer should prepare extensively. If you have the money, you might want to hire an attorney who specializes in negotiations to represent you.
- Effective negotiations requires that you come up with your “walkaway” number.^{[8]XResearch source} This is the maximum amount that you would be willing to pay to settle the lawsuit. If the plaintiff cannot meet that number, then you step away from negotiations.
- To come up with your walk away number, your lawyer will analyze the strength of your case. If the plaintiff does not have strong evidence of fraud, then you might want to set your walkaway number lower than if the plaintiff has strong evidence.
3
Propose mediation. You might want to mediate the dispute instead. Mediation is a form of “assisted negotiation.” The mediator is a neutral third party who meets with you and the plaintiff. You explain the dispute and the mediator attempts to guide the parties to a solution they can both accept.
- The mediator doesn't act as a judge. Nor does the mediator have any power to declare one party the winner and force the other to pay money. Mediation is entirely voluntary.^{[9]XResearch source}
- Mediation is also confidential. This means that statements made during mediation cannot be used against you later at trial. For this reason, you might want to give mediation a chance.
4
Draft a settlement agreement. If negotiation or mediation is successful, then your lawyers will work on drafting a settlement agreement. This agreement is a contract.^{[10]XResearch source} Both you and the plaintiff will agree to something. Typically, you will agree to pay the plaintiff some money and the plaintiff will agree to withdraw the lawsuit.
- Also make sure that your lawyer includes a release in the settlement agreement. This release is an agreement that the plaintiff will not turn around and file another lawsuit based on the same allegations.
5
Arbitrate the dispute instead. You might have the option of arbitrating the dispute instead of going through a trial. In arbitration, you and the plaintiff present your case to an arbitrator (or panel of arbitrators). The arbitrator acts like a judge.
- Arbitration is most like a trial. The arbitrator's decision is binding, which means you must abide by it. If you or the plaintiff fail to abide by the arbitrator's decision, then the other party can sue in court.
- Advantages of arbitration include that it is private and that arbitration goes faster than a trial.^{[11]XResearch source} For example, you can arbitrate a dispute in a year whereas a full trial in court might take 18 months or more.
- If you are interested in arbitration, then tell your lawyer. Your lawyer can propose arbitration to the plaintiff.
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Part 3

Part 3 of 3:

Defending Yourself at Trial

1
Hire expert witnesses. If you are sued by the federal government, then you will probably need to hire expert witnesses. It is unlikely that the government will sue you on behalf of one borrower; instead, the government will sue because your practices have affected thousands of borrowers.
- Accordingly, you will probably need a forensic accountant or other expert to go through all of the mortgage loans that you have made, possibly over the period of several years.
- You might also need a legal expert to testify as to whether you followed federal or state mortgage lending laws. The expert can also offer an opinion on whether your lending practices were up to industry standards.
- If you need an expert, then your attorney should be familiar with experts who will testify for the defense.
2
Make pretrial motions. Your lawyer can file motions before court to limit what the plaintiff can say at trial. For example, your lawyer should make a motion to prevent the plaintiff from using the term “mortgage fraud” at trial.^{[12]XResearch source}
- This term is unduly prejudicial. It is also not accurate—there is technically no federal “mortgage fraud” offense.
- You can also have other prejudicial terms, such as “fraudulent flipping,” also prohibited.
3
Select a jury. The judge will call a panel of prospective jurors to sit in the jury box and then ask them questions. The purpose of the judge's questions is to feel out whether the juror can be impartial. Accordingly, the judge will ask if the juror knows either party or whether the juror already has any knowledge of the case.^{[13]XResearch source}
- If you think a juror cannot be fair, then you can ask the judge to dismiss the juror for cause.
- You will also have a limited number of “peremptory challenges” to use. With these challenges, you can excuse a potential juror without having to give the judge a reason.^{[14]XResearch source}
- You also might be able to give the judge questions to ask the jurors. Because jury selection is so important, your lawyer will prepare extensively for it. She might even hire a jury selection expert. If your lawyer has questions for the jury, the questions will probably be focused on the juror's feelings about banks or mortgage companies and whether the juror has had a negative experience with a bank. You can then use a peremptory challenge on those prospective jurors who admit to such negative experiences.
4
Make opening statements. Both parties make opening statements to the jury. Your lawyer will tell the jury what evidence will be presented and its overall significance to the case.^{[15]XTrustworthy SourceUnited States CourtsOfficial website for the U.S. court systemGo to source}
- You can expect the opening statement to be fairly brief, unless you are being sued by the government in a case involving complicated facts and a large amount of loans. In that situation, your lawyer will have a lot of information to lay out for the jury.
5
Cross-examine the plaintiff's witnesses. The plaintiff presents evidence first, usually in the form of witnesses and documents. After the plaintiff's lawyer asks the witness questions, your lawyer will be able to cross-examine. The focus on cross-examination will differ depending on the witness.
- For example, if the borrower testifies about what you said during a meeting, then your lawyer will try to undermine the witness's credibility. For example, the witness might claim that you intimidated her into signing a high-interest loan. Your lawyer can undermine the witness's testimony by pointing to contradictions in the testimony. If the witness waited a week to sign the mortgage, then this evidence shows that she didn't sign for the loan because of your intimidation a week earlier.
- Your lawyer can also cross-examine any expert witnesses. Your lawyer can challenge the witness's credentials and experience. Also, your lawyer will work closely with your own expert to come up with questions to undermine the testimony of the plaintiff's expert.
6
Present your own witnesses. After the plaintiff finishes presenting his case, the defense can present witnesses. Your defense will probably consist of expert testimony.
- You might have to testify, in particular if you were the agent who made the mortgage loan. If you do have to testify, then remember the following tips:^{[16]XResearch source}
  - Never guess when answering a question. If you don't know the answer, then say so.
  - Understand the question before answering. If the question is vague, then ask the lawyer to phrase it differently.
  - Sit still and speak clearly. You don't want to do anything distracting in front of the jury.
  - Stop talking if someone objects. Attorneys might object if a question is out-of-bounds. You should wait for the judge to rule on the objection before answering.
After all evidence has been submitted, the parties will make closing arguments to the jury. Your lawyer will try to persuade the jury that the evidence commands a result in your favor.
The judge will read the jury its instructions and then send the jury off to consider the evidence presented. If you are sued in federal court, then the jury's verdict must be unanimous. Depending on your state, the verdict may not need to be unanimous in state court.^{[17]XResearch source}
9
Consider filing an appeal. If you lose the jury trial, then you might want to bring an appeal. In the appeal, you can tell the appellate court what errors the trial judge made and why these errors warrant a new trial.
- Appeals can be quite expensive, so you should discuss the strength of your case with your lawyer.
- For example, if the judge made an obvious mistake—admitting evidence which he shouldn't have—then you might find it worthwhile to bring an appeal. By contrast, if the judge made no significant error, you might want to simply pay the judgment entered against you.
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