South MS couple's flood insurance rate hiked by 984%. They're suing their mortgage company

Dec. 2—A Bay St. Louis couple was shocked to learn from their mortgage company in August 2023 that they had been without flood insurance for a year while living in a special flood hazard area near the intersection of Bayou LaCroix and the Jourdan River.

But worse news was coming. Less than two months later, their mortgage company, Flagstar Bank, National Association acquired a flood policy for the home of Mary and Gary Stevens because flood insurance is mandatory for mortgaged homes in flood zones. The cost of the flood insurance was 984% more than the Stevenses had been paying.

"Not only did they lose the benefit of the highly favorable grandfathered premium rate they had previously enjoyed, but their home was left uninsured against loss due to flood waters for an entire year, in a hurricane-prone area where flood insurance is required," says a lawsuit the Stevenses have filed.

They are suing Flagstar and the company that has since acquired their mortgage, RoundPoint Mortgage Services LLC. The lawsuit is pending in U.S. District Court in Gulfport, where RoundPoint had it moved from state court.

The case illustrates the financial hardship homeowners can face if their flood insurance lapses. Before their insurance lapsed, the Stevenses were paying a grandfathered rate of $761 a year to cover their house, which sits on stilts near the waterfront.

The new policy Flagstar found cost $8,250 a year. The Stevenses shopped around and did find less expensive coverage, but the policy they found costs them $4,175 a year — an increase of 448.6% over their grandfathered rate.

Flood insurance unpaid, lawsuit says

The Stevenses had flood insurance on their home when Flagstar took over the mortgage in June 2021, and Flagstar initially paid the grandfathered premium when due in August 2021. In August 2022, Flagstar failed to pay the premium, the lawsuit says.

Their insurer, American Bankers Insurance Co. of Florida, notified the Stevenses that the premium had not been paid but said the couple didn't need to act if their mortgage company was sending the money.

Flagstar assured the Stevenses that the premium had been paid when due and their insurer was just slow to note payment. The couple didn't find out until August 2023 that their coverage had lapsed the previous year, the lawsuit says, noting Flagstar did nothing to ensure the payment was made and posted.

Flagstar denies any wrongdoing, saying its records show a check was written and delivered to American Bankers. Flagstar says that American Bankers and its agent, DeWitt Insurance Agency of MS Inc. in Diamondhead, never notified Flagstar of nonpayment or provided other information essential to processing flood-insurance payments from the Stevenses escrow account.

Bay St. Louis couple seeks millions in damages

Flagstar has filed its own third-party lawsuit in the case against American Bankers and DeWitt. American Bankers denies any wrongdoing. DeWitt argues that no judgment has been entered against Flagstar, so Flagstar can make no legal claim against DeWitt.

The Stevenses lawsuit, filed by attorney Andy Taggart of Ocean Springs, notes that a federal agency levied a $3.6 million fine against Flagstar in December 2021 for violating federal flood law and regulations that apply to lenders managing flood insurance through escrow accounts. The federal Office of the Comptroller of the Currency found the violations stemmed from Flagstar's "risk assessment, internal controls, and training, along with its inadequate third-party risk management program over its loan servicing."

The Stevenses are seeking a total of $32 million in actual and punitive damages from Flagstar and the company that now has their mortgage, RoundPoint Mortgage Servicing LLC.

They accuse Flagstar of mismanaging the Stevenses escrow account in violation of federal law and RoundPoint of violating the same law by failing to rectify the situation.. They also accuse the companies of gross negligence and willful misconduct because of the previous violations for which Flagstar was fined.

RoundPoint has denied any wrongdoing, saying the company acquired the mortgage only after a new flood policy was put into place and that the premium for that policy is not due until December 2024.

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