Not engaging with borrowers who have missed payments may not seem like the strongest grounds for litigation against a bank, but that is the basis for an innovative lawsuit against U.S. Bank, according to an analysis in the New York Times DealBook blog on Saturday. The lawsuit focuses on a popular type of government-guaranteed mortgage that in fact requires that banks take distinct steps — like trying to arrange a meeting — when borrowers stop paying. The lawsuit is being brought by Advocates for Basic Legal Equality, a legal aid group. In a twist, the group is suing U.S. Bank in federal court in Ohio on behalf of the United States government, using the False Claims Act. This legislation, which dates to the Civil War, allows private citizens and groups to pursue legal action against companies and other entities for receiving payments from the government on false grounds. In this case, the legal aid group is focusing on mortgages that were guaranteed by the Federal Housing Administration, which is part of the United States Department of Housing and Urban Development. Specifically, the legal aid group asserts that U.S. Bank made false claims to the government by collecting payments from the FHA without also fulfilling the agency’s requirements that banks take certain steps to try to work with the borrower in default.
