The Ministry of Housing and Urban Development has been accused of not issuing
A proposed class-action lawsuit filed by borrower Tricia Sarmiento in Florida accuses the department of being slow to pay out the money owed and making the process bureaucratic in the first place.
Almost 60,000 borrowers in Florida are owed a total of $22 million in refunds, according to 2020 figures from HUD’s Office of Inspector General that were cited in the lawsuit. Meanwhile, statewide, 754,730 homeowners had unclaimed funds totaling $384.7 million. Of this amount, 200,576 borrowers terminated their mortgage more than 20 years ago.
HUD
Sarmiento, in his suit, is demanding that HUD repay borrowers in arrears and demanding that the department reform “a system that is plagued by failure.” Law360 first reported the story.
“This is a fight for transparency, accountability and fairness,” the suit says. “The federal agency’s failure to meet its obligations has deprived thousands of homeowners of significant refunds.”
The Ministry of Housing and Urban Development declined to comment on pending litigation.
Joshua H. Egnatz, the attorney representing Sarmiento, said this is an important case for all borrowers who have an FHA-backed mortgage.
“We are seeking a return of unused premiums to our customers and class members that should have been refunded to them long ago, and a change to HUD so that future purchasers are protected,” Eggnatz wrote in a statement Wednesday.
Under HUD regulations, closing an FHA mortgage within seven years of purchase or refinancing results in an overpayment of MIP, and the department is required to automatically refund the unearned amount.
Despite the protocol, the federal agency systematically failed to identify eligible borrowers and imposed unnecessary bureaucratic hurdles as a means of withholding “hundreds of millions of dollars from homeowners,” the lawsuit alleges.
Plaintiff defaulted on her FHA loan in 2001 and was not informed at the time that she was owed a refund. Also, Sarmiento didn’t know he had to request a refund to get his money back.
Upon learning that this was the case, the plaintiff requested the document on January 31, 2022. Two years later, the plaintiff claims she was not provided with the refund application. HUD owes her more than $1,000 in restitution, the suit says.
According to the lawsuit, for many applicants, “HUD took a significant, unreasonable and unjustified amount of time, often two to three years, before the refund application was received by the borrower.”
Instead of automatically issuing refunds as promised by law, HUD requires borrowers to specifically request a refund application and sends those applications to old addresses even though it knows that “the borrower no longer lives at the address of the FHA-insured property,” the proposed class action outlines.
In addition, the agency often fails to notify qualified borrowers who owe refunds.
“Plaintiff seeks to enforce HUD’s non-discretionary, clearly defined, and purely ministerial obligations—indeed, there is no dispute that Plaintiff and Class Members are owed MIP recovery,” the suit alleges.
