A federal judge in Camden has largely denied a motion to dismiss a class action lawsuit over “force placed” insurance policies for holders of reverse mortgages.
Mortgage lender CIT Bank, mortgage servicer Financial Freedom Senior Funding Corp. and three insurance companies moved to dismiss the suit, which claims the defendants conspired to engage in abusive practices against a class of holders of reverse mortgages. But U.S. District Judge Renee Bumb denied the motion to toss the nine-count complaint, except to dismiss a count for tortious interference against the insurance company defendants.
The ruling allows the suit to proceed against Financial Freedom, CIT and the three insurance company—QBE Insurance Corp., QBE First Insurance Agency and MIC General Insurance—on counts for conspiracy to defraud, violation of the Racketeer Influenced and Corrupt Organizations Act and the New Jersey Consumer Fraud Act. Financial Freedom and CIT also face counts for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Truth in Lending Act.
The suit is being brought on behalf of a potential class of CIT borrowers who were charged for force-placed insurance by the defendant insurance companies. The suit claims that holders of reverse mortgages whose property insurance lapsed were charged excessive premiums and fees for policies placed on their homes through arrangements between CIT, Financial Freedom and the three insurance companies.
The sole named plaintiff is Monica Gray, executrix of Earl Gray Jr., who died in 2016 after obtaining a reverse mortgage from Financial Freedom on his house in Cinnaminson. He left the property to Monica’s children, Jasmine and Justin, in a trust. But he failed to maintain hazard insurance coverage on his property, as required by the mortgage terms, prompting Financial Freedom to arrange the issue of force-placed insurance on his property.
The suit claims Financial Freedom gets a commission or kickback from buying force-placed insurance from the QBE defendants and MIG General. The cost of the insurance, and the kickback, is then passed on to the property owner, according to the suit.
The suit does not challenge Financial Freedom’s ability to obtain force-placed insurance to protect its interest in the borrowers’ loans it services, but challenges its “manipulation” of the process through its “scheme” with the other defendants.
“Defendants’ practices have resulted not only in imposing unwarranted and excessive charges for insurance and inspection fees on the reverse mortgage loans it services, but also led to unprecedented rates of reverse mortgage foreclosures and the eviction of elderly consumers from their homes,” the lawsuit claims.
Bumb dismissed the tortious interference claims against the insurance defendants after finding the allegations lacked a requisite element of malice. She said that in the context, malice does not mean ill will, but that harm was inflicted intentionally, without justification or excuse. Concluding that that was not the case, she cleared the insurance company defendants on the tortious interference count.
CIT and Financial Freedom claimed the state-law claims against them are pre-empted by the Home Owners Loan Act, a federal law. But Bumb disagreed. While the U.S. Supreme Court and the U.S. Court of Appeals for the Third Circuit have yet to rule on HOLA’s pre-emptive effect on state law claims, Bumb found no pre-emption based on rulings from other federal appeals courts.
The defendants also claimed that the RICO and Truth in Lending Act counts are time-barred and that they fail on the merits. Bumb said the RICO statute of limitations issue was “one in which they ultimately may prevail” but is “better decided after discovery.” The question of equitable tolling of the TILA count, likewise, “is more appropriately addressed on a developed record rather than at the pleadings stage.”
The plaintiffs and class are represented by Roosevelt Nesmith, an attorney in Montclair, and Catherine Anderson of Giskan Solotaroff & Anderson in New York. Nesmith said in a statement, “We are heartened by the court’s decision which upheld the overwhelming majority of plaintiffs’ claims alleging CIT Bank, its Financial Freedom division, and its forced-placed insurers, QBE Insurance and MIC General Insurance, misled consumers in overcharging them for insurance it force-placed on their properties and in imposing unwarranted inspection fees on their mortgage accounts. We look forward to continuing to prosecute these claims on behalf of the named plaintiffs and the putative class.”
Louis Smith of Greenberg Traurig in Florham Park represents CIT; and Charles Faletta of Sills, Cummis & Gross in Newark, and Stephen LeBlanc of Buckley Sanders in Washington, D.C., represent the insurance companies. None of the defense attorneys responded to a request for comment.