Force-placed Insurance Kickbacks Alleged in new $140 Million Class Action Lawsuit

When I became aware of a new class action lawsuit involving mortgage servicers it reminded me of an experience I had a few years ago.  I’ve had homeowner’s insurance with Allstate for the past 11 years and have never been late to pay my premiums.  So, imagine my surprise when I received a nasty letter from my mortgage provider saying that I would have to purchase their insurance for over $3,000 rather than renewing with Allstate for just over $1,000.  It took several attempts and certified mail from my insurance broker to get the mortgage company to back off but it did cause me a bit of grief.

Apparently, I was lucky to get away with just a bit of inconvenience as this class action lawsuit alleges that kickbacks are the motivation for coercing homeowners into costly insurance premiums.

How it works: mortgage servicers can obtain their own coverage for your property if you fail to keep the insurance current of if the premiums aren’t paid. In many cases this coverage will cost you more than the policy you originally chose.  Sometimes this can be up to 10 times more!

However, a recent $140-million class action settlement shed light on a controversial business practice in the mortgage industry: alleged kickbacks in connection with force-placed insurance policies.

This latest settlement involves nearly 400,000 borrowers across the country whose mortgages were serviced by Ocwen Financial Corp. from January 2008 to this January.

The plaintiffs contended that Ocwen and Assurant, a large insurance company, and its affiliates “entered into exclusive and collusive relationships” whereby the insurer or 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.

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, said Adam M. Moskowitz, a Miami lawyer whose firm has filed 13 class actions in the last few years challenging force-placed practices of banks, servicers and insurers.

Though most defendants have agreed to modify their practices as part of settlement agreements, Moskowitz said force-placed insurance overcharges still may be widespread because companies find other ways to pay and receive kickbacks, such as by creative use of affiliates.

But the bad news doesn’t end here for Ocwen Financial Corp.  Apparently they are also the defendants in a securities fraud class action lawsuit that alleges violations of the Securities Exchange Act of 1934.

Ocwen senior executives allegedly took at least $60 million per year in these so-called earned insurance fees and rather than place them on Ocwen’s balance sheet, the senior executives diverted those fees to Altisource – a company owned and controlled by Ocwen’s Chairman of the Board.  This securities fraud class action then addresses the question of whether these related transactions constitute securities fraud against Ocwen shareholders.

You can read about that suit here:

Have you heard of any experiences similar to these? We’d love to hear from you!

You can read the full story here:

  • RE_Insider

    From one of our readers: This is a huge RESPA violation. Shouldn’t the Bureau of Real Estate commissioner get involved?

  • Jamie L.

    Thank you for shedding light on this matter – this practice makes me sick. I’m sure that things like this are still going to happen, but hopefully this lawsuit will deter some. Then again, there are some who will always try to find ways to get around the law – that’s why I always to
    advise my clients to look over their bills carefully, and to always research the companies they plan on working with.

  • RE_Insider

    Another reader shared their experience with us. The email reads:

    Thanks for allowing me to comment on my painful experience having FORCED INSURANCE with my Mortgage Loan Servicing Company, that I truly feel is a part of Band of America, this company is Bay View Loan Servicing Co.. My original loan was with Country Wide, well as we know Bank of America bought out Country Wide. After which the economy crashed, I fell behind on my mortgage due to extremely high rates, so after years of struggling I finally got a loan modification, one year later I went to Bank of America to pay my Mortgage as usual, and was told Bank of America no longer held my mortgage and that Bay View Loan servicing was my new mortgage company. When I contacted Bay View Loan Servicing they told me I had to make 12 monthly payment and not be one day late, and that my Mortgage Insurance and property taxes were included in the payment, well at that time I was so distort I just started to make the payments. Recently I began to check into exactly what I was paying, I then found out the amount of insurance I was paying for their FORCED COVERAGE INSURANCE after checking with Farmers insurance was double the amount of Farmers. I had to make many attempts to get Bay View Loan Servicing Company to accept Farmers as my insurance carrier, as well as Farmers they had a very difficult time to get Bay View to accept their calls or faxes, finally they did. However after I was allowed to have my own insurance Bay View increased the amount of my monthly payments, they said they had to increase the money in what they call my escrow account, so my payments are not lower as a matter of fact they are higher. Oh, not to mention property taxes, it’s the same story regarding property taxes. I truly wish some how some way these Loan Servicing Companies could be investigated, I think most of them if not all of them are designed to take unfair advantage of the American Home Owner.

  • Rose Castro

    Another Bayview Loan Servicing horror story.

    On May 2011, an oversight by our insurance agent turn our lives into the mercy of Bayview Loan Servicing. At that time, the loan was serviced by M & T Mortgage. One day the check for the mortgage payment arrived by mail as it was returned as an incomplete payment. It so happened that the insurance had lapse for one month and we have not become aware of it. M & T Mortgage was now demanding the monthly payment + the complete annual premium for the forced placement insurance of $15,000.00(Our regal annual insurance premium was $4,200.00 the insurance premium trippled) which amounted to a figure of over $22,000.00. During this year, we were experiencing very difficult times as this property is a residential income property in Las Vegas and struggling with multiple vacancies so coming up with $22,000.00 was not an option for us.

    Once we knew the nature of the problem the insurance agent began faxing copies of the new policy. For at least two months both my brother and the insurance agent kept faxing copies of the new policy and M & T Mortgage continued to deny having received a copy of the insurance policy. On the third month, I received a call from M & T Mortgage to notify me that the property was now in default and if we had considered to short sale the property or a deed in lieu even though we continued to mail our normal monthly payment and they continued to reject it as a short payment.

    To make the story short once the property was in default the loan was transferred back to the loan originator Bayview Loan Servicing and now we had an absolute nightmare as neither M & T Mortgage nor Bayview Loan Servicing ever had an answer for us and they began bouncing my e-mails and telephone calls back to each other as the M & T Mortgage was the one who placed the forced insurance coverage Bayview Loan Servicing was hands off but moving our property in the foreclosure process.

    It was not until I obtain legal advice from an attorney and who helped me write a letter with certain language that explained how they were in breach and I mailed the letter along with a check bringing the account current based on the regular monthly payments.

    After one year of constant e-mails, phone calls, certified letters, I was able to receive a letter from Bayview Loan Servicing that the lender placed insurance had been cancelled and our insurance was in placed. However, we were still billed for all the late fees and every penalty you could think off to re-instate the loan. We paid it in order to end the nightmare.

    The Farmers Agent and our entire family were traumatized of this process.
    How can it take one year to update a file and cancel coverage of a Forced Lender Policy and risk having someone loose a life time savings that it takes to purchase some of these properties.

    I have a very well documented phone journal, e-mails and certified letters for another class action lawsuit against Bayview Loan Servicing or if anyone has any information on how I can contact the law firm handling this case for advice please provide contact information. I would like to recover all the fines and penalties I was unjustly charged and add the name of another lender to light and showcase this as a common practice used by Lenders against american property owners and own clients.