Class action lawsuit on forced-placed insurance for reverse mortgages gets green light

Judge fails to dismiss suit against CIT Bank, Financial Freedom and 3 insurance companies

A federal judge in New Jersey denied a motion to dismiss a class action lawsuit over force-placed insurance policies for reverse mortgage borrowers.

According to an article in the New Jersey Law Journal, the suit claims that CIT Bank, CIT’s former subsidiary Financial Freedom, and three insurance companies – QBE Insurance, QBE First Insurance Agency and MIC General Insurance – conspired to defraud borrowers by charging excessive fees for the forced-placed insurance applied to their properties in order to comply with the terms of their reverse mortgage loans.

While all five companies face charges of conspiracy to defraud, CIT and Financial Freedom face additional counts for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Truth in Lending Act.

On Dec. 28, U.S. District Judge Renee Bumb dismissed a count for tortious interference against the insurance companies but greenlit the rest of the suit.

The lawsuit alleges that Financial Freedom received kickbacks for buying forced-placed insurance from the insurance company defendants, and that the cost of the insurance and the kickback was charged to the borrowers.

The only named plaintiff is Monica Gray, executor of the estate of her deceased father, Earl Gray. Earl Gray obtained a reverse mortgage from Financial Freedom for his house in Cinnaminson, New Jersey, but failed to maintain hazard insurance on the property, which he left to his grandchildren in a trust upon his passing.

While the suit does not contest the lender’s right to assign forced-placed insurance to protect its interests in the property, it asserts that Financial Freedom schemed with the insurance companies to manipulate borrowers, including Gray.

“Defendants’ practices have resulted not only in imposing unwarranted and excessive charges for insurance and inspection fees on the reverse mortgage loans it services, but also led to unprecedented rates of reverse mortgage foreclosures and the eviction of elderly consumers from their homes,” the lawsuit claims.

While CIT and Financial Freedom made a number of arguments to dispute the claims against them, Judge Bumb concluded that those arguments were not enough to warrant dismissal of the charges at this stage.

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