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.
The deal proposed in April would settle allegations by a proposed class that the insurer paid the mortgage servicing company to inflate force-placed insurance premiums. Putative class members Shane and Cecilia Valdez said in their supplement to a previous filing that a Ninth Circuit ruling highlighted settlement features implying class counsel bias.
“The Ninth Circuit found that the district court abused its discretion by not probing deeper into the fairness of the settlement,” the objectors wrote. In that case, the appellate court ruled “there were ‘subtle signs that class counsel have allowed pursuit of their own self-interests … to infect the negotiations,’” the objectors said.
The proposed deal would end a suit accusing the companies of entering into an exclusive contract for force-placed insurance for mortgage borrowers without their own insurance. While admitting that insurance premiums would be higher than market price, the bank failed to tell borrowers that it was up to 10 times more expensive and that the bank would make money off the inflated premiums, according to the suit.
The objectors said Thursday that the Ninth Circuit had pointed to signs that could indicate collusion between class counsel and the defendant in a settlement in Allen v. Labor Ready Southwest Inc.
In that ruling, the Ninth Circuit said the fact that the class counsel would receive a disproportionate amount of the award taken together with provisions sending undistributed funds back to the defendants and agreeing that the defendants would not oppose the plaintiffs’ attorney fees warranted extra scrutiny by the district court.
On May 26, the proposed class had responded to similar arguments in the objectors’ initial filing saying that, unlike the Ninth Circuit, the 11th Circuit allows attorneys to recover percentages of a settlement without regard to the final payout and that class counsel “should not be penalized” for proposed class members’ failure to grab a piece of the settlement.
The plaintiffs also said that while the other two features mentioned in the objectors’ latest filing may warrant “closer scrutiny” of the deal, they “should not compel rejection of a settlement that is otherwise reasonable.”
In mid-May, U.S. Magistrate Judge Jonathan Goodman asked the defendants to fill in details on how the settlement would be paid out. Ocwen and Assurant defended the deal as “extremely generous.”
“We are not sure why this serial objector decided to violate the court’s order regarding supplemental filings and with an opinion that does even relate to final approval,” Adam Moskowitz of Kozyak Tropin & Throckmorton, who represents the class in the settlement, told Law360.
“We are glad that 99.99 percent of the nationwide class reviewed this settlement [and] approved it and we thus look forward to the hearing next week,” Moskowitz said.
Counsel for the objectors and the defendants did not reply to requests for comment.
The class is represented by Adam M. Moskowitz, Thomas Tucker Ronzetti, Rachel Sullivan and Robert J. Neary of Kozyak Tropin & Throckmorton PA, Aaron S. Podhurst, Peter Prieto and Matthew P. Weinshall of Podhurst Orseck PA, and Lance A. Harke, Sarah Clasby Engel and Howard M. Bushman of Harke Clasby & Bushman LLP.
Objectors Shane and Cecilia Valdez are represented by Stephen J. Fearon Jr. of Squitieri & Fearon LLP. Objector Margo Perryman is represented by Barry R. Himmelstein of Himmelstein Law Network and Sheri L. Kelly of the Law Office of Sheri L. Kelly.
Ocwen is represented by Brian V. Otero, Stephen R. Blacklocks, Ryan A. Becker and Corey A. Lee of Hunton & Williams LLP.
Assurant is represented by Frank G. Burt, W. Glenn Merten, Brian P. Perryman and Farrokh Jhabvala of Carlton Fields Jorden Burt PA.
The case is Lee v. Ocwen Loan Servicing LLC et al., case number 0:14-cv-60649, in the U.S. District Court for the Southern District of Florida.
–Additional reporting by Dani Kass. Editing by Jeremy Barker.
The Washingon Post: Allegedly abusive property insurance deals lead to class action settlement
The Washington Post
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.