Monday, December 8, 2008
Court Rules Statements in Loan Applications ‘False Claims’
By STEVEN M. ELLIS, Staff Writer
Two California home sellers who falsely stated in applications for federal government mortgage insurance that they had not used their own funds to inflate buyers’ down payments violated the False Claims Act, the Ninth U.S. Circuit Court of Appeals ruled Friday.
Affirming a $5.8 million judgment against Morteza Eghbal and Marilyn Trujillo, the court held that the men’s statements to the federal Department of Housing and Urban Development about funds they provided to buyers bore directly on buyers’ ability to pay, and thus had a causal connection to $2.8 million in claims the department was forced to pay to mortgage holders when buyers defaulted.
Eghbal and Trujillo purchased 200 HUD-foreclosed homes throughout the 1990s and resold them for profit to buyers with mortgage secured loans insured by the department. As some buyers lacked sufficient assets to cover the down payment, the pair provided portions of down payments by depositing their own personal funds into escrow via cashiers’ checks.
However, the department will not insure a loan for a home if the down payment was paid by the seller, and the men signed a document required by the department falsely certifying they had not provided any part of the payments.
After buyers of at least 62 of the properties defaulted on their mortgages, the government charged Eghbal and Trujillo criminally with making false statements, and the pair pled guilty.
The government then brought an action under the False Claims Act seeking treble damages, and U.S. District Judge John F. Walter of the Central District of California granted summary judgment for $5.8 million with respect to 27 properties after subtracting amounts the government received from resale, indemnification, and restitution by the men.
The men appealed, but the Ninth Circuit affirmed the judgment in an opinion by Senior U.S. District Judge Justin L. Quackenbush of the Eastern District of Washington, sitting by designation.
“Eghbal and Trujillo contend that the Government failed to show that their false statements set into motion a false claim, because they sought only to fraudulently induce HUD to insure the mortgage, not to have the buyers default or cause the mortgage holders to make claims on HUD,” he wrote.
“It is true that Eghbal and Trujillo were not parties to the actual claims presented to HUD, made after the buyers defaulted, which resulted in monetary payments by the Government. However, liability under the FCA nevertheless attaches, because the false statements were ‘relevant to the government’s decision to confer a benefit’….
“The plain language of the FCA contemplates liability not only for fraudulently causing the Government to pay a claim, but also for causing the Government to approve a claim.”
Quackenbush similarly rejected the men’s challenge to the amount of the judgment, writing that “the amount of the forfeiture was not so grossly disproportionate to the gravity of the offense as to violate the Eighth Amendment, especially because a systematic and ongoing scheme like Eghbal’s and Trujillo’s undermines the integrity of the programs and erodes public confidence in the government’s ability to manage and fund such programs.
Judge Jay S. Bybee and Senior Judge William C. Canby Jr. joined Quackenbush in his opinion.
Beverly Hills attorney Lawrence C. Ecoff and Santa Monica attorney Michael E. Nasatir represented Eghbal and Trujillo.
The case is United States v. Eghbal, 07-55372.
Copyright 2008, Metropolitan News Company