Whistleblowers are true heroes – their actions save taxpayers billions of dollars each year, help struggling homeowners and sometimes even save lives. The road can be a bit lonely however. This post looks at the story of Kyle Lagow, a former real estate appraiser with Countrywide Financial (now Bank of America). Lagow was recently awarded $14.5 million by a Brooklyn federal court judge. While the case was pending, however, his life was very different.

According to published reports and court records, Lagow was a self-employed real estate appraiser. As his company grew, his business was acquired by Countrywide.

Appraisers are critical to the lending process. Obviously, anyone reading this article is aware of the importance of a proper appraisal. HUD’s handbook states, “The success of the FHA insurance program and HUD’s ability to protect its interest begins with selecting qualified and knowledgeable appraisers… Appraisals performed for HUD /FHA are not intended to protect the buyer; they protect HUD.”

When banks held their own paper, the model worked perfectly. However once lenders began selling their mortgages the opportunity for fraud increased dramatically. According to the lawsuit, “Countrywide loosened its underwriting guidelines to the point of nearly abandoning them by 2006.” The complaint says that the lender used its market power to pressure appraisers to inflate values to whatever amount was needed to close the loan and to “punish appraisers who refused to play ball.” Harsh words

The inflated appraisals were good for Countrywide’s business but a disaster for both homeowners and taxpayers who were left footing the bill when the market crashed.

Homeowners were left underwater on their mortgages with no way of selling for what they owed and taxpayers had to pay billions when investors sought to collect under Federal Housing Administration loan guarantees.

According to Reuters, Lagow first tried to tell his superiors at Countrywide that what they were doing was wrong. Nothing ever happened to Lagow’s internal complaint and he was fired shortly thereafter when Bank of America acquired Countrywide.

Lagow then sought legal help from a law firm specializing in whistleblower cases. Ultimately he filed a complaint under the False Claims Act and waited. That waiting paid off earlier this year when he was awarded $14.5 million.

Whistleblower cases are filed under seal meaning they are secret. Once filed, the government is given 60 days to investigate the case, although the court routinely extends that period to 6 months or more. While under seal, the whistleblower is not able to discuss the case with anyone except his or her lawyer and the government. Even the target of the case (usually the whistleblower’s present or former employer) isn’t told of the suit.

Ultimately, the government decides whether or not to intervene and take over the suit. Once that decision is made, the case becomes unsealed and is public.

Lagow was suffering thyroid cancer when fired. Once let go, he had tremendous difficulty paying bills while out-of-work. Amazingly, many employers simply haven’t figured out that whistleblower claims rarely come from happy employees. Lagow brought his complaint after he was fired.

There are many cases of abuse within the lending industry, particularly by the big banks and lenders. Lagow’s case was one of a handful of whistleblower cases that were adopted by federal prosecutors. (Our firm presently has the largest; HUD’s $2.4 billion suit against mortgage giant Allied Home Mortgage.)

If you were an appraiser, branch manager, underwriter or quality assurance person at a lender and know of illegal activity, you may have a claim. The False Claims Act requires that there must be some harm or loss to the government. In the case of home mortgages, that’s usually pretty easy to find since the government backs so many mortgages.

To be a whistleblower, you must also be an original source of information. Having personal knowledge of the illegal conduct works, reading about it in the paper does not.

About the Author. Brian Mahany is an attorney with Mahany & Ertl, a national boutique practice concentrating in fraud recovery and representing whistleblowers. They handle a wide variety of cases against lenders including whistleblower cases and wage and hour cases on behalf of underpaid sales staff. Brian welcomes comments and questions; he can be reached by email at brian@mahanyertl.com or by telephone at (414) 704-6731.