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!
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