HUD accused of failing to refund hundreds of millions in mortgage insurance premiums
The Department of Housing and Urban Development is accused of failing to issue mortgage insurance premium refunds to borrowers who opted to terminate their FHA-insured mortgages early. As of 2020, almost $400 million is owed to homeowners.
A proposed class action lawsuit, filed by borrower Tricia Sarmiento in Florida, blames the department for slow-walking the disbursement of monies owed and for making it bureaucratically complicated to get the process going in the first place.
Almost 60,000 borrowers in Florida are owed refunds, totaling $22 million, according to 2020 data from HUD’s Office of Inspector General, which was cited in the suit. Meanwhile, nationwide, 754,730 homeowners had unclaimed funds totaling $384.7 million. Of that sum, 200,576 borrowers terminated their mortgage more than 20 years ago.
HUD watchdog’s audits in 2020 and 2022 rang the alarm on such practices, outlining the department’s lack of protocols and adequate procedures relating to reimbursing MIP to borrowers.
Sarmiento in her suit is demanding for HUD to pay back overdue refunds to borrowers and is pushing the department to reform “a system which has been plagued by failure.” Law360 first reported the story.
“It is a fight for transparency, accountability and fairness,” the suit said. “The federal agency’s failure to uphold its duties has deprived thousands of homeowners of substantial refunds. “
The Department of Housing and Urban Development declined to comment on pending litigation.
Joshua H. Eggnatz, the attorney representing Sarmiento, said this is an important case for all borrowers who have an FHA-backed mortgage.
“We are seeking return of our client’s and class members’ unused premiums that should have been refunded to them long ago, and a change at HUD so future buyers are protected,” Eggnatz wrote in a statement Wednesday.
Per HUD regulations, a termination of an FHA mortgage within seven years of purchase or refinancing triggers an overpayment of the MIP and the department is required to automatically refund the unearned sum.
Despite the protocol, the federal agency systematically fails to identify eligible borrowers who qualify and imposes unnecessary bureaucratic hurdles as a means of withholding “hundreds of millions of dollars from homeowners,” the suit alleges.
The plaintiff terminated her FHA loan in 2001 and was not informed at the time of doing so that she was owed a refund. Furthermore, Sarmiento did not know she had to request a refund application to recover her money.
Upon learning that was the case, the plaintiff requested the document on Jan. 31, 2022. Two years later, the plaintiff claims she has not been provided with the refund application. HUD owes her a refund of over $1,000, the suit purports.
According to the legal action, for numerous applicants “HUD took a significant, unreasonable, and unjustified length of time, often two to three years, before a refund application was received by the borrower.”
Instead of automatically issuing a refund, as is promised by law, HUD requires borrowers to affirmatively request a refund application and sends these applications to old addresses despite knowing “the borrower no longer lives at the FHA-insured property address,” the proposed class action outlines.
Additionally, the agency often fails to provide notice to qualifying borrowers that are owed a refund.
“Plaintiff seeks to enforce HUD’s nondiscretionary, plainly defined, and purely ministerial duties – indeed, there is no dispute that plaintiff and class members are owed MIP refunds,” the suit asserts.
