Homeowners claimed the insurers automatically issued policies on these properties at lender-approved rates, which were well above market rates, leaving homeowners to cover
the costs.
Objectors to a $140 million deal between homeowners, Ocwen Financial Corp. and Assurant Inc. over allegedly inflated force-placed insurance premiums asked a Florida federal court Thursday to consider a Ninth Circuit ruling pointing to “subtle signs” that class counsel in that case skewed a settlement in their own interest.
Borrowers accusing Nationstar Mortgage LLC of colluding with force-placed insurance providers to make lucrative profits asked a Florida federal judge on Monday to finalize a $54 million settlement of their class action, calling it an “extraordinary” result for the plaintiffs.
Plaintiffs’ motion for final approval of the deal said it would resolve claims by roughly 380,000 borrowers who allegedly had mortgage loans with Nationstar and were overcharged for hazard, flood or wind coverage issued by Assurant Inc. or its subsidiaries between Jan. 1, 2008, and Jan. 30 of this year.
Plaintiffs claimed the issuers and their subsidiaries entered into exclusive relationships with major mortgage lenders and services to provide force-placed insurance policies implemented when borrowers lapsed on their coverage. The issuers allegedly charged inflated premiums and paid tens of millions of dollars in kickbacks to Nationstar and its affiliates.
The settlement would block Nationstar from engaging in practices that allegedly inflated the insurance premium charges imposed on mortgagors for five years, according to Monday’s motion in the U.S. District Court for the Southern District of Florida.
“This result is … extraordinary because it involved the resolution of complex issues against a rising tide of adverse decisions from federal district and appellate courts — decisions class counsel would certainly distinguish, but their opponents would just as vigorously assert,” the filing said.
The Seventh Circuit in February 2013 affirmed the dismissal of a proposed class action alleging Wachovia Mortgage FSB placed fraudulent insurance on a homeowner’s property and paid kickbacks to an insurance agency affiliate, finding the complaint didn’t state a viable claim for relief. The Eleventh Circuit ruled in February 2014 that a mortgage borrower could not prevail in a suit alleging Wells Fargo Bank NA required her to have more flood insurance on her home than the amount mandated by regulations governing Federal Housing Administration-guaranteed loans, saying the amount is a minimum, not an upper limit.
The issue arose from the practice of mortgage banks requiring borrowers to secure hazard insurance to protect their properties. Plaintiffs didn’t challenge the requirement to have insurance but argued that the arrangement that Nationstar had with Assurant and others artificially inflated the cost of premiums beyond what was reasonable or necessary to protect the property, according to court documents.
JPMorgan Chase NA, HSBC USA NA, Citibank NA and Wells Fargo NA — as well as their affiliates and several insurers — agreed to settle claims similar to the ones in the instant suit. In March 2014, Wells Fargo and Assurant Inc. settled for an undisclosed amount in a similar case. And Bank of America NA in April 2014 agreed to pay $228 million to settle a putative class action — in the same court as the instant suit — accusing the bank of overcharging homeowners for force-placed insurance.
Monday’s motion said some of the practices at issue were blocked by a settlement with New York state regulators, but the prohibitions only applied to borrowers in that state and only bound Assurant.
Plaintiffs in the instant suit reached a settlement-in-principle roughly a year ago following mediation, they said in the motion seeking final approval of the deal. The Florida federal court preliminarily approved the settlement and certified the proposed settlement on Jan. 30 of this year, court filings said.
Plaintiffs’ attorneys are seeking $5 million in fees, which amounts to 9.26 percent of the money obtained in the settlement, according to court papers. They said they had received only two objections and 26 opt-outs, which supports the fee request.
Adam M. Moskowitz of Kozyak Tropin & Throckmorton LLP, which is representing the plaintiffs, told Law360 on Monday that they ”are glad to present our ninth nationwide lender placed class action settlement to the court for final approval and are appreciative that over 99.9 percent of the class supported the settlement.”
An Assurant spokesman told Law360 on Tuesday that the company does not acknowledge any wrongdoing in the case, “but we feel it’s in the best interest of our company to attempt to resolve the matter.”
A spokesman for Nationstar declined immediate comment on Tuesday.
The class is represented by Adam M. Moskowitz, Tucker Ronzetti, Rachel Sullivan and Robert J. Neary of Kozyak Tropin & Throckmorton LLP, Lance A. Harke, Sarah Engel and Howard M. Bushman of Harke Clasby & Bushman LLP, and Aaron S. Podhurst, Peter Prieto, John Gravante III and Matthew Weinshall of Podhurst Orseck PA.
Nationstar is represented by Alan G. Greer and Nathaniel M. Edenfield of Richman Greer PA, and John B. Sullivan, Mark D. Lonergan, Erik Kemp and Megan C. Kelly of Severson & Werson PC. Assurant and other defendants are represented by Frank G. Burt of Carlton Fields Jorden Burt PA.
The case is Howard Braynen et al. v. Nationstar Mortgage LLC et al., case number 1:14-cv-20726, in the U.S. District Court for the Southern District of Florida.
–Additional reporting by Kelly Knaub and Zachary Zagger. Editing by Kelly Duncan.
Anyone who has taken out a home mortgage knows that one of the borrower’s key responsibilities is to pay hazard insurance premiums on the property and not let the policy lapse.
But are you aware that if you fail to keep the insurance current, or if the premiums aren’t paid from your escrow account, the lender or its mortgage servicer can obtain its own coverage, which may cost you more than the policy you originally chose?
How much more? Double the premium cost you had been paying? Triple? Even 10 times higher — sometimes for inferior coverage? Potentially any of the above.
A $140 million national class-action settlement last week — one of a series of cases brought against major banks, mortgage servicers and insurers — shed fresh light on a controversial business practice in the mortgage industry: alleged kickbacks in connection with “force-placed insurance” policies.
Force-placed insurance has been a feature of mortgage contracts for years. It has a legitimate purpose: protection of the house, which is the lender’s collateral for the loan, says Florida attorney Dennis Wall, who has written a new book on the subject for the American Bar Association. But when kickbacks and affiliate side deals drive premiums to abusive levels, he told me in an interview, “it’s a bad game.”
[Low credit scores may mean higher homeowners insurance rates]
The latest settlement involves nearly 400,000 borrowers across the country whose mortgages were serviced by Ocwen Financial Corp. between January 2008 and January of this year. The plaintiffs, who filed suit in U.S. District Court in Miami, charged that Ocwen and Assurant, a large insurance company, and Assurant affiliates “entered into exclusive and collusive relationships” whereby the insurer or its affiliates allegedly paid Ocwen kickbacks, commissions and other compensation in exchange for force-placed coverage for lapsed policies at inflated premium costs to the consumer.
Ocwen and Assurant both denied wrongdoing as part of the settlement. In a statement provided to me, Ocwen said it settled the case to “avoid prolonged and distracting litigation.” Terms of the final settlement must be approved by a federal judge next month before the Ocwen clients can begin to file claims for recovery of overpayments.
According to the complaint, “the money paid [was] not given in exchange for any services” supplied by Ocwen. It was “simply grease paid to keep the force-placed machine moving.” Borrowers frequently had no idea what was going on.
One plaintiff in the class action had been paying around $700 in premiums annually for his original hazard insurance policy, issued in 2006, but coverage lapsed in 2008 because of nonpayment. After his servicing was transferred to Ocwen in 2011, he received a note from the company saying that it had force-placed a new policy with an annual premium three time higher — $2,180. A year later, the premium was raised to $2,244.
[Just asking about an insurance claim can make your rate go up]
Another plaintiff alleged that when her servicing account was transferred to Ocwen from her original lender, the insurance premiums were not paid from her escrow account and, unknown to her, the coverage lapsed. At that point, she said, Ocwen force-placed coverage requiring much higher premium payments. Worse yet, the coverage amount in the policy was for more than double her outstanding loan balance — $209,000 of coverage on a loan with a remaining balance of just $80,000 — and it did not include personal property or liability.
Still another plaintiff alleged that Ocwen force-placed an expensive new policy despite having been informed by an independent insurer that it had already written coverage for the borrower and that force-placed insurance was not needed.
Adam M. Moskowitz, an attorney in Miami whose firm, Kozyak Tropin & Throckmorton, has filed 13 class actions in the past several years challenging banks’, servicers’ and insurance companies’ force-placed practices, said in an interview that consumers who filed for claims in settlements have received anywhere from $100 to $12,000 in cash relief, depending on how much they had allegedly overpaid. Total settlement amounts have ranged as high as $1 billion in benefits and $300 million in cash relief in a final settlement with one national bank.
While most defendants have agreed to modify their practices as part of settlement agreements, Moskowitz says force-placed insurance overcharges may still be widespread because companies find other ways to pay and receive kickbacks, such as by creative use of affiliates.
How to protect yourself against possible rip-offs like these? First, be aware of the problem. Keep an eye on the hazard insurance premium payments out of your escrow account. If you send in payments directly, never let your policy lapse. And challenge any demands for outrageous premiums.
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