November 11, 2015
Two of the largest mortgage servicers in the U.S. reached a combined $217 million settlement in Miami federal court over a national homeowner insurance scandal.
Ocwen Loan Servicing LLC and Nationstar Mortgage faced class action lawsuits covering more than 1 million homeowners suing over insurance policies the servicers and lenders
placed on their properties. Banks, other lenders and their loan servicers have long authorized third-party insurers to access their records and identify borrowers with no property insurance or insufficient
coverage to satisfy mortgages. Homeowners claimed the insurers automatically issued policies on these properties at lender-approved rates, which were well above market rates, leaving homeowners to cover
Lenders call it creditor-placed insurance. But foreclosure defenders prefer the term force
placed, and they say the practice brought large and illegal returns for lenders. They say
insurers paid commissions of up to 25 percent to lenders, while overburdened homeowners
struggled through the housing collapse.
“These practices had been going on for a long time, but they were never brought to light,”
Adam Moskowitz, a partner at Kozyak Tropin & Throckmorton in Coral Gables, told the Daily
Moskowitz teamed with lead co-counsel Aaron Podhurst of Podhurst Orseck in Miami and
Lance Harke of Harke Clasby & Bushman in Miami to represent more than 1 million
U.S. Magistrate Judge Jonathan Goodman approved the Nationstar settlement on Monday
and the Ocwen settlement Sept. 14.
The deals provide $140 million in monetary relief from Ocwen and $77 million from
Nationstar, revising practices that once allowed lenders and servicers to benefit from
collateral protection insurance.
Ocwen Nationstar Pay 217 Million to Settle Force Placed Insurance Suit | Daily Business Review
“The settlement is generous to class members, providing relief approximating a trial win and
for many class members exceeding a trial win,” Goodman wrote in the 75-page Ocwen order
that allows homeowners to recoup 12.5 percent of the net insurance premium.
It was the latest blow for Ocwen, which reached a $150 million settlement with New York
state regulators over accusations of improper servicing practices for allegedly levying
excessive charges on distressed borrowers through affiliated companies and failing to
maintain adequate systems to service billions of dollars’ worth of mortgages. Former Ocwen
chairman William Erbey stepped down as part of the New York settlement, and the company
paid a $100 million penalty plus $50 million in restitution to current and former borrowers
who faced Ocwen foreclosure actions from 2009 to 2014.
The latest Miami settlements are among 14 in nationwide class action suits filed in the
Southern District of Florida. The cases involved more than 4 million homeowners nationally
and provided injunctive changes and more than $2 billion in relief.
“Much of the credit for this great relief to so many homeowners across the country goes to
those leaders … who made the decision to help their customers even though they thought
they would eventually win these lawsuits,” Moskowitz said. “They really should be
Attorney Frank Burt of Carlton Fields Jorden Burt in Miami represented insurers named as
co-defendants in the suits, while Brian Otero of Hunton & Williams in New York represented
Ocwen and John Sullivan of Severson & Werson in San Francisco was the attorney for
Nationstar. None responded to requests for comment by deadline.
Moskowitz and his team first challenged force placed insurance when they certified a class
three years ago against Wells Fargo & Co. and reached a $20 million settlement for
monetary and injunctive relief in March 2013. Since then, they’ve reached settlements with
some of the nation’s largest banks including JPMorgan Chase, Bank of America N.A. and
HSBC Holdings PLC.
“Force placed insurance drove many people into foreclosure and caused them to lose their
homes and have their lives uprooted and thrown into disarray,” said Royal Palm Beach
foreclosure defense attorney Thomas Ice, who was not involved in the litigation. “The
settlement is a step in the right direction but will do little to discourage such recidivistic
behavior by financial institutions.