Hagens Berman: Two Bank of America Fraud Whistleblowers Settle Claims, Including Former LandSafe/Countrywide Employee Who Earned $14 Million Reward -- BAC
SEATTLE, May 29, 2012 (GLOBE NEWSWIRE) -- Attorneys representing former home appraisal manager Kyle W. Lagow, who blew the whistle on widespread fraud at Countrywide Financial, today announced the final settlement of Mr. Lagow's whistleblower action. Mr. Lagow's whistleblower suit sparked an investigation culminating in the historic $1 billion settlement between the Department of Justice and Bank of America (NYSE:BAC), a settlement that was itself part of the larger global bank settlement announced last month, the second largest government civil settlement in history.
Also announced was final settlement of fraud claims by Gregory Mackler, a whistleblower who challenged Bank of America's fraudulent handling of the Home Affordable Modification Program meant to help millions of struggling homeowners. His claim, which led to the return of over $6 million to the Department of Treasury from Bank of America, was also part of the global bank settlement.
Lagow worked at LandSafe, Inc., an appraisal company owned by Countrywide Financial and ultimately acquired by Bank of America, from 2004-2008. According to his unsealed complaint, Mr. Lagow observed widespread disregard for laws that regulate Federal Housing Administration (FHA) underwriting and home appraisals.
Specifically, he claimed that Countrywide conspired with LandSafe and homebuilder KB Homes to inflate the appraised value of homes, boosting the size of the lending giant's loans to homebuyers. In order to accomplish this, the lending giant allegedly used a number of strong-arm tactics to pressure appraisers to report favorable home values.
The law requires that appraisers act neutrally and without regard to the lender's interests, a safeguard meant to protect the government, who insures low- and moderate-income loans.
"We believe that the defendants' behavior resulted in inflated home prices for buyers," said Steve Berman, Mr. Lagow's attorney and managing partner at Hagens Berman who handled the case along with firm partner Shayne Stevenson. "Even worse, we believe the scheme both directly and indirectly cost the United States government billions of dollars and played an important role in the wave of foreclosures that fueled the financial meltdown of 2008."
Lagow hired Hagens Berman, a national law firm with a large whistleblower practice, to represent him as a whistleblower under the False Claims Act, a law that provides rewards for whistleblowers who disclose original information leading to a successful recovery of taxpayer funds lost due to fraud. His inside information led to an expanded investigation that culminated in the $1 billion settlement between Bank of America and the U.S. Government, of which Lagow received over $14.5 million as a reward.
Mr. Lagow became suspicious shortly after he was hired, when in early 2005 he met with LandSafe's President Todd Baur. According to Lagow, Baur said that LandSafe's role was to facilitate closing of home sales, a role that was in stark contrast to LandSafe's legal responsibility; to provide accurate and safe home appraisals.
"The entire purpose of hiring an appraiser is to discover a fair and accurate market value for a home," said Berman. "However, from the start LandSafe made clear that its function would be to rubber stamp Countrywide's desire to close loans without regard for proper valuation."
The second warning sign came a few months later, when Lagow learned of a joint venture between home developer KB Homes and Countrywide. Lagow hired staff appraisers, who were sent to homes to perform inspections only to be turned away, told by KB Homes sales representatives that the homebuilder would alone decide who would perform appraisals on its properties.
Disturbed by the potential for a conflict of interest which could allow KB Homes to assign an inflated value to a home and then cherry-pick appraisers who would agree with its judgment, Lagow claimed he did additional research.
However, as he dug deeper, he found that KB Homes had hired one person to handle all appraisals in Houston, an impossible task for one person. Yet, the appraiser turned in more than 400 appraisal orders per month. Lagow was further shocked to find that the appraiser was paid an inflated rate of nearly $450 per report.
Lagow also claimed that his appraisers were denied access to key documents that contained final sale prices for similar properties, an essential data point for appraisals. Instead, his team had to rely on the Multiple Listing Service (MLS) sales price, which he believes KB Homes manipulated by reducing the sale price of homes at the last minute while reporting the original, higher price.
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