Two co-whistleblowers lost their bid before the Ninth Circuit last month to proceed with a False Claims Act case alleging that mortgage lenders and servicers defrauded Fannie Mae and Freddie Mac. Those who brought the case (the relators) alleged that the lenders and servicers (the defendants) violated the FCA by falsely certifying that loans purchased by Fannie and Freddie were free and clear of certain homeowners association fees and costs, when defendants knew they were not. This allegedly caused Fannie and Freddie to pay or reimburse defendants to maintain the properties.
At first blush, the decision in United States ex rel. Adams v. Aurora Loan Services, which upheld a lower court decision granting the defendant’s motion to dismiss, may seem to pose a threat to the role the FCA has played in combating mortgage industry fraud.
But the holding is unlikely to have an impact on future FCA cases. The Ninth Circuit opinion is limited to the narrow theory under which the relators were proceeding, and, in response to the urging of the United States in an amicus brief, expressly disclaims any holding on the broader issue of how fraud on Fannie and Freddie can give rise to FCA liability.
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