Kirby McInerney LLP Files Class Action Lawsuit Against GMAC Mortgage Alleging an Illegal Kickback Scheme in Connection With Force-Placed Insurance on Borrowers’ Homes
GlobeNewswire |
To protect the lenders' interest in secured property, mortgage loan contracts require the borrower to maintain specified levels of hazard insurance. If the borrower's coverage lapses, the lender is entitled to purchase coverage for the home, "force place" it, and be reimbursed by the borrower for the cost.
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Plaintiff asserts that defendants' kickback scheme has improperly inflated the reimbursements sought from borrowers with respect to force-placed insurance on GMAC-serviced loans. This is because the stated premiums with respect to which GMAC has sought reimbursement have been fraudulently "grossed up" to include the kickbacks. The amounts of the kickbacks have then been repaid by Balboa to GMAC in round-trip transactions that have no legitimate business purpose. The net charge – i.e., the stated premiums minus the kickbacks – represents the true or actual price or cost of the insurance.
The lawsuit alleges that the owners of the loans serviced by GMAC have also been harmed by the kickback scheme. All servicing agreements entitle servicers such as GMAC to recoup any advances they incur from loan proceeds "off the top" before any money is passed through to the owners of the loans. Premiums on force-placed insurance constitute reimbursable servicing advances under all such agreements.
The complaint alleges that GMAC, in its capacity as loan servicer, has reimbursed itself with respect to force-placed insurance based not on its actual costs but instead on the artificially inflated, fraudulently grossed-up premiums charged to borrowers. In other words, it is alleged that GMAC, in recouping its supposed servicing advances before passing money through to the owners of the loans, has not netted out the amounts of the kickbacks that it has received from Balboa, but has instead included the full amounts of the stated premiums, inflated by the kickbacks. As a result, to the extent borrowers have failed to pay, the owners of the loans have borne those fraudulently inflated costs in the form of reduced proceeds and higher loss severities at liquidation. In practice, this means that the profits reaped by GMAC as a result of the scheme alleged herein have come from the pockets of the pension funds that invest in the mortgages in GMAC's servicing portfolio and – in the case of loans in the portfolio owned by Fannie Mae and other
"The practice of inflating force-placed insurance costs through kickbacks is parasitic, abusive and, we believe, illegal," stated
The complaint alleges claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Section 1961, et seq., and state law.
If you are homeowner who has been charged for force-placed insurance by GMAC or any other servicer, if you have information or would like to learn more about these claims, or if you wish to discuss these matters or have any questions concerning this announcement or your rights with respect to these matters, please contact
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Copyright: | 2012 GlobeNewswire, Inc. |
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