LoanCare Force-Placed Insurance Practices Questioned

A class action has been filed against mortgage servicer LoanCare, questioning its practices with force-place insurance covering property used as collateral for mortgages.

The nationwide class for this action includes all persons with a residential mortgage loan or line of credit with LoanCare, secured by property located in the US, who were charged for force-placed insurance on the property, within their state’s statute of limitations. There is also a Florida subclass.

The borrowers in this case had PITI loans—that is, they were required to make payments to the servicer that included amounts for principal, interest, taxes, and insurance payments. The insurance covered the property that was collateral for the mortgage loan.

The complaint alleges that when borrowers failed to maintain their insurance policies, LoanCare did not attempt to maintain the policies itself but replaced them with other policies. These other, force-placed insurance (FPI) policies cost more and offered less coverage, but offered certain benefits to LoanCare. Also, the complaint alleges, even when borrowers did maintain their own insurance policies, LoanCare sometimes failed to make payments on their behalf and then obtained FPI policies for them as well. Not only were these policies more costly, they were sometimes redundant, covering overlapping risks.

This class action does not take issue with force-placing insurance or with FPI’s higher cost. Instead, the complaint says, it challenges specific FPI practices, which involve illicit and self-serving agreements that provide kickbacks or other unearned benefits, and policies that are redundant or overlapping. It also challenges LoanCare’s practice of not paying borrower-provided insurance and instead replacing it with insurance that provides benefits to LoanCare.

In addition, the complaint alleges that borrowers’ payments for FPI included excessive costs that went not exclusively to the FPI policies and transactions. Instead, the complaint claims, these funds paid for the tracking and/or monitoring of all loans serviced by LoanCare, even though LoanCare outsources these expenses at below-market rates.

In recent years, the complaint says, regulators have given FPI closer scrutiny, uncovering “serious concerns and red flags” such as lack of competition in the market, tight relationships between the lenders and insurers, and costs for the borrower that are three to ten times the price of regular insurance.

According to the complaint, sometimes servicers have exclusive agreements with insurance companies, in return for which the insurers give the servicers kickbacks. It claims that, in some cases, servicers even outsource their loan processing to the FPI insurer, which is quite prompt in providing FPI for borrowers who fail to maintain policies. Thus, the complaint says, the servicer does little or no work in monitoring loans, and simply collects unearned payments from the insurer for the insurer’s exclusive rights to force-place high-cost insurance.

Article Type: Lawsuit
Topic: Consumer
Tags: Deceptive Insurance Practices, Forced Placed Insurance, Insurance, Mortgage-Related Unfair Practices, Unfair Services, Your Bank, Your Home