A Florida judge threw out a suit accusing the Department of Housing and Urban Development of not refunding mortgage insurance premium to borrowers who opted to terminate their FHA-insured mortgages early. As of 2020, almost $400 million was owed to homeowners, the original lawsuit claimed.
William Fung, a federal judge overseeing the case, ruled the plaintiff failed to prove an actual injury. Additionally, Fung questioned whether a lawsuit is the right way to challenge an agency’s entire program.
The complaint was dismissed without prejudice on Nov. 15, which means Tricia Sarmiento, the plaintiff, has 21 days to refile her suit, if she so chooses.
The original complaint blamed 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. These complications presented themselves in HUD requiring paperwork for said reimbursement, but not always furnishing the forms.
Sarmiento in her suit demanded that HUD pay back overdue refunds to borrowers and was pushing the department to reform “a system which has been plagued by failure.” Law360 first reported the story.
Since filing the suit in March of 2024, HUD issued Sarmiento the necessary forms to get her MIP refund. Now that she has the proper paperwork, it is in her hands to file it, said Fung.
“If Ms. Sarmiento’s only alleged injury is that she has not yet received a refund, she needs to apply for and complete that decisionmaking process before she can bring that claim,” wrote Fung.
The Florida judge also wrote that Sarmiento wants “sweeping reforms the court is powerless to give.”
“This court…cannot offer plaintiff the relief requested without overhauling how HUD issues MIP refunds. This is impermissible,” court documents said. “The court could not control any of these internal functions without ‘injecting the judge into day-to-day agency management,’ which is patently forbidden.”
The decision to dismiss the case also stemmed from the fact that Sarmiento sued HUD and Julia Gordon, the commissioner of the Federal Housing Administration, instead of filing litigation against the United States. This, HUD argued previously, and the federal judge agreed in his ruling, made the claim “invalid on its face.”
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, Sarmiento’s suit said 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 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 plaintiff purports. According to the now dismissed 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.”
Fung based his dismissal of the case on a prior Supreme Court ruling, which determined that lawsuits challenging an entire agency’s program are not the correct method for improving it.
“The respondent cannot pursue broad reforms of [a government program] through a court order, but should instead address such improvements within the agency or through Congress, where programmatic changes are typically made,” the judge wrote.
