Foreclosure Whistleblower Wins $18 Million in Bank Accord

Szymoniak, 63, is among six whistle-blowers who will pocket $46.5 million as part of a $25 billion national foreclosure settlement that state and federal officials reached in February with five banks, including Bank of America Corp. and JPMorgan Chase & Co. (JPM), according to the U.S. Justice Department.

“When they did this to her, they picked the wrong person at the wrong time in the wrong place,” Richard Harpootlian, Szymoniak’s attorney in two whistle-blower cases, said in an interview. “They stuck their hand into the beehive.”

Szymoniak’s examination, in which she relied on her experience as an insurance-fraud investigator, led to her claims against banks for submitting fraudulent documents to the federal government asserting that they owned loans insured by the Federal Housing Administration, she said.

The national foreclosure settlement with the five banks, which resolves claims of abusive foreclosure practices, provides mortgage relief to borrowers, pays $1.5 billion to those who lost their homes to foreclosure, and sets standards for how the banks service mortgage loans.

Whistle-Blowers’ Share

As part of the agreement, whistle-blower claims are being settled for about $228 million, according to court papers filed in federal court in Washington. A group of six whistle-blowers will receive $46.5 million out of that amount, said Alisa Finelli, a Justice Department spokeswoman.

Szymoniak’s foreclosure case began in July 2008 when Deutsche Bank AG (DBK), as trustee for a mortgage securitization trust, sued to seize her Palm Beach Gardens, Florida, home, which was once worth $1.3 million. The bank couldn’t prove it owned her loan and claimed it had lost the mortgage note, she said.

John Gallagher, a spokesman for Frankfurt-based Deutsche Bank, declined to comment on Szymoniak’s foreclosure case.

Like many homeowners, Szymoniak said she was surprised by the subprime mortgage crisis and its effect on the U.S. real- estate market. She stopped making mortgage payments in 2008 after a battle with cancer wiped out her savings and she cut back on work to care for her mother, who was sick, she said in an interview.

‘Pretty Obvious’

Szymoniak said she was first alerted to problems in the paperwork on her foreclosure when Deutsche Bank said it acquired her mortgage note in October 2008, three months after the bank sued her over the loan.

“So I began doing what I’ve done for years — go out and investigate,” she said. “It was pretty obvious to me that the paperwork was fraudulent.”

Her work quickly uncovered widespread document fraud in the mortgage industry, she said, and eventually led to the filing of her whistle-blower cases in 2010.

The whistle-blower claims resolved in the national settlement include a case filed in Atlanta in 2006 in which banks are accused of defrauding military veterans and the U.S. government.

Veterans’ Refinancing

The banks violated rules under a Department of Veterans Affairs program for refinancing mortgage loans by charging improper fees to veterans, according to the complaint. The banks hid those fees and obtained government guarantees on the loans, according to the complaint.

The two whistle-blowers, Victor Bibby and Brian Donnelly, will split $11.7 million out of the $45 million JPMorgan agreed to pay to settle the veterans case, said Brandon Peak, a lawyer working on the case. Claims against other banks in the case are pending.

The settlement underscores the benefits provided to taxpayers from whistle-blowers and the incentives for those who expose fraud through so-called qui tam cases, Peak said.

“This is what qui tam actions are for — to incentivize people to come forward and expose fraud,” he said. “The taxpayers actually receive this money back that they never would have received absent these whistle-blowers.”

Robo-Signed Documents

Szymoniak said her review of mortgage documents uncovered the practice known as robo-signing, in which bank officials and contractors signed documents without verifying the information. Tens of thousands of documents were affected, and the same people also used various job titles on the forms, she said.

Szymoniak was the first whistleblower to find reams of documents signed by Linda Green, an employee of a mortgage- processing company, that contained questionable signatures, Harpootlian said.

“These documents were clearly signed by different people in different places, with different signatures, on the same dates,” Harpootlian said.

It took her “less than five days” to figure out that the practices were widespread, Szymoniak added.

Szymoniak decided to approach law-enforcement officials with her suspicions that taxpayers may have been defrauded as the fraudulent documents were submitted to the U.S. Department of Housing and Urban Development by banks seeking to collect on government-insured loans, she said.

AIG Lawsuit

Her discoveries also prompted her to hire Harpootlian, who had retained Szymoniak in the past as an expert witness in a lawsuit against the insurer American International Group Inc., to file her whistle-blower claims.

Szymoniak was also represented by Ken Suggs, another South Carolina-based plaintiffs’ lawyer and Reuben Guttman, a Washington-based attorney who specializes in whistle-blower litigation.

Most whistle-blower cases are brought by company insiders who uncover wrongdoing within their own corporations or a competitor’s, said Joel Hesch, a former Justice Department lawyer who is now a professor at Liberty University Law School in Virginia. A person doesn’t have to be an insider to file a false-claims case, said Hesch, who spent 16 years litigating whistle-blower cases on behalf of the government.

The government turns down about 80 percent of whistle- blower cases it reviews as a required step in the litigation, Hesch said. If the government rejects the case, plaintiffs are free to press their claims on their own.

Prepared to Sue

Szymoniak said she was prepared to do just that if the government failed to join her suit over mortgage-foreclosure practices.

Thomas Kelly, a spokesman for New York-based JPMorgan, declined to comment on the whistle-blower cases resolved as part the national foreclosure settlement. Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, didn’t return an e-mail seeking comment.

The three other lenders that agreed to the national settlement were Detroit-based Ally Financial Inc. (ALLY), San Francisco-based Wells Fargo & Co. (WFC) and Citigroup Inc. (C) Gina Proia, an Ally Financial spokeswoman, declined to comment. Wells Fargo spokeswoman Vickee Adams didn’t return an e-mail seeking comment.

Mark Rodgers, a Citigroup spokesman, also declined to comment on the claims. The New York-based bank has added resources to ensure foreclosures are processed correctly, he said in an e-mailed statement.

“The changes and safeguards implemented give Citigroup confidence that there are no systemic issues in its existing foreclosure processes,” he said.

Szymoniak said she’s unsure what she’ll do with the $18 million award. Deutsche Bank is proceeding with its foreclosure action against her home, she said.

“Even if I pay off the mortgage, I would own a house with no clear title, so I still couldn’t sell it,” she said.

The national foreclosure settlement case is U.S. v. Bank of America Corp. (BAC), 12-00361, U.S. District Court, District of Columbia (Washington).



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