On August 12, 2016, ECBA and MFY Legal Services filed a federal class action challenging the legality of a Department of Housing and Urban Development (HUD) program that sells government-insured FHA home mortgages to private equity funds, leaving these borrowers without insurance-program benefits they are entitled to and putting them at heightened risk of foreclosure. The suit further alleges that HUD’s program violates the Fair Housing Act because HUD is disproportionately selling FHA loans issued to African-American borrowers in New York City for homes in predominantly African American neighborhoods like St. Albans, Queens.
The lawsuit, filed in the Eastern District of New York, also challenges the actions of Lone Star Funds, the largest purchaser of mortgages sold through the HUD program. The lawsuit alleges that once Lone Star purchases the mortgages from HUD, it preys on the homeowners: the company makes false and misleading statements to the homeowners, refuses to offer homeowners loan modifications it is legally obligated to provide, and instead offers homeowners exploitative loan modifications that spell almost certain foreclosure for these borrowers down the line. The complaint also alleges that Lone Star violates the Fair Housing Act because its policies disproportionately impact African-American borrowers and predominantly African-American communities in New York City.
The suit was covered by the New York Times on Monday, August 15, 2016. The putative class is represented by ECBA attorneys, Matthew D. Brinckerhoff and Diane L. Houk, along with co-counsel MFY Legal Services. A copy of the complaint is accessible here.