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Will Quicken Loans be Granted a Venue Change to Settle Toxic FHA Loans Allegations?

courtroom-scalesQuicken Loans is in the midst of a government lawsuit for allegedly knowingly submitting claims  for hundreds of improperly underwritten Federal Housing Administration (FHA)-insured loans and where that case will be settled.

The most recent controversy from this case involves where the case should be held and settled. The government agencies believe that the case should be situated in Washington, D.C., while Quicken recently submitted a renewed request to move the case to Detroit, Michigan, according to a report from The Detroit News.

The report said on Wednesday, U.S. Attorney Brian Hudak filed a 376-page motion stating, "The Court should not reward Quicken Loans’ filing of meritless pre-emptive suit by granting it its favored forum when this district is an appropriate forum for the case to proceed," Hudak said.

Jeffrey B. Morganroth, Managing Partner of Morganroth & Morganroth and attorney for Quicken Loans, sat down exclusively with MReport to explain the lender's case in further detail and the company's reason for wanting to move the case from Washington, D.C., to Detroit, Michigan.

Morganroth said in an interview Friday that Quicken deems Detroit to be an "appropriate, proper and convenient location" to hold the proceedings of the case.

"Quicken Loans is the number one FHA lender both in quality and quantity," he stated. "That is based on FHA’s own published statistics. Quicken also has the lowest default rate for the loan that they originate for the FHA out of any large lender. Their default rate is three times better than the FHA pool of lenders."

Jeffrey Morganroth

Jeffrey B. Morganroth

Morganroth said that the case was filed in the Detroit Federal Court in April 2015 and "that is the most appropriate, proper, and convenient location for a case like this."

The lender filed a suit in April 2015 in the U.S. District Court for the Eastern District of Michigan against the U.S. Department of Justice and the Department of Housing and Urban Development, claiming the agencies have been trying to bully the company into making “blatantly false” statements and demanding the company pay “an inexplicable penalty or face legal action,” according to a statement released by Quicken.

The Detroit-based lender claims the government has enjoyed “extraordinary profitability for FHA's insurance program” through its efforts, saying the company’s participation in FHA's program will earn the government more than $5.7 billion in net profits “from the insurance premiums collected above and beyond claims made from over $40 billion in FHA home loan volume closed by Quicken Loans during the 2007 to 2013 timeframe.”

"After three years of struggling to understand the DOJ's position and methodology,” said Quicken CEO Bill Emerson, “it is time to ask the court to intervene. It's a shame the DOJ would choose to attack the country's largest and highest quality FHA lender … at the very time our nation needs expanded access to credit for middle-class Americans who benefit most from the FHA program.”

Just a six days after Quicken filed its suit, the DOJ filed a lawsuit against Quicken accusing the lender of improperly originating and underwriting FHA-insured mortgages, according to an announcement from the DOJ.

"Those who do business with the United States must act in good faith, including lenders that participate in the FHA mortgage insurance program," said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division. "To protect the housing market and the FHA fund, we will continue to hold responsible lenders that knowingly violate the rules."

Quicken then filed a motion to transfer the D.C. case to Detroit, which Morganroth says is "the most appropriate, proper, and convenient forum."

There were two separate and distinct reasons that Quicken raised with the court in D.C. in its initial motion to transfer, according to Quicken's counsel for the case. First, there already was a case pending in Detroit filed by Quicken that had some overlap with the later filed D.C. case. Quicken sought to transfer the D.C. case to be heard with the earlier filed case in Detroit because both cases should be heard in the same venue for purposes of judicial economy and expediency. Second, there is a statute (1404) that sets forth various factors in terms of whether or not a case should be transferred to a different forum irrespective of whether there is an earlier filed overlapping case pending. Quicken also sought to transfer the DC case to Detroit based on the application of the 1404 factors which make clear that Detroit is the most appropriate, proper, and convenient venue, Morganroth reiterated.

"Essentially, all of the witnesses identified in the government’s complaint are located in Detroit, all of the documents referenced in the complaint are in Detroit, and all of Quicken’s management and employees who made decision that are at issue in the D.C., complaint are all in Detroit. There is no real link to D.C.," Morganroth explained in the interview.

The court did not initially rule on the motion. The judge decided to hold off and to stay that entire case for a determination on a motion filed by the government as to Quicken Loans’ case in Detroit they moved to dismiss. Judge Goldsmith in the eastern district of Michigan dismissed Quicken’s case on largely procedural grounds, determining that the best way to resolve these issues would be as defenses in connection with the government’s D.C. case.

At this point, Quicken refiled its motion to transfer because the judge in D.C. said based on that motion and the decision that happened in Detroit, one of the grounds that were raised in our original motion was no longer an issue, so Quicken shifted their focus back to the 1404 statute.

The government filed their opposition this week. Morganroth says, “It glaringly evidences this desperate attempt by the government to venue shop and pick a jurisdiction that doesn’t really have any link to the case and would make the case more burdensome, costly, and difficult for Quicken to defend. Their opposition is filled with mischaracterizations and disingenuous spin. They make ridiculous arguments including that Quicken sponsors a PGA Tour golf event in Washington, D.C., which benefits military families and that supposedly is one of the reasons why that jurisdiction is the right one. They make an argument that Quicken is not entitled to a transfer of their case because the Detroit case was dismissed, but the fact that it was dismissed has no bearing on the 1404 transfer motion.

He continued, "Finally, what the DOJ is doing in their opposition is trying to make some argument that government employees are core witnesses in the case and they have a listing of these employees that are located in Washington, D.C., however, the employees that they list are claims and payment processing employees and the case has nothing to do with claims and processing of payments."

Morganroth said that the heart of the case is whether or not Quicken Loans knowingly engaged in a scheme to violate FHA guidelines.

On March 8th, Quicken filed a motion to dismiss the D.C. case. “We did that because the complaint does not allege a False Claims Act violation. It does make that assertion, but the pleating is defective because they can’t and have not asserted any factual allegations that would support any of the elements of a False Claims Act violation. This has not been done because there are no facts to support that claim."

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