Mortgage

Appeals court revives class-action suit against Nationstar for redundant flood insurance

Reverse mortgage borrower alleges "improper" insurance cost her thousands

A federal appeals court in Florida overturned a previous ruling last week that will mean Nationstar will now have to face allegations that it violated Florida law by charging homeowners for unnecessary flood insurance.

In a unanimous decision, judges in the 11th Circuit Court of Appeals revived part of a Florida condo owner’s claims against Nationstar, accusing the servicer of ripping off borrowers by unnecessarily placing flood insurance on their properties for which they were charged thousands of dollars.

The case was brought by Sarah Alhassid, who took a reverse mortgage on her Aventura, Florida, condo through Seattle Mortgage Company in 2007. The loan rights were then transferred to Bank of America, and the servicing rights were transferred to Nationstar.

Alhassid’s condo association had a flood insurance policy in place, meaning she was exempt from the requirement to purchase her own per the terms of the HECM loan.

But despite having knowledge of this, Nationstar purchased flood insurance on Alhassid’s property and charged her for the premiums, which bumped up her monthly interest and mortgage insurance payments.

Alhassid pursued Nationstar under claims that it violated the Fair Debt Collection Practices Act, the Florida Consumer Collection Protection Act and two provisions of the Florida Deceptive and Unfair Trade Practices Act. She also sought compensation for unjust enrichment.

While a district court previously shut down those claims, an appeals court is upholding one of them, asserting that Nationstar must face the allegation that it violated the state’s act against deceptive and unfair trade practices with the “improper” placement floor insurance.

“No state or federal statute, as best as we can tell, compels a servicer to purchase force-placed flood insurance when doing so would be unnecessary or duplicative,” the judges stated.

“In fact, in the analogous context of hazard insurance, federal law expressly prohibits the purchase of force-placed insurance ‘unless the servicer has a reasonable basis to believe that the borrower has failed to comply with the mortgage loan contract's requirement to maintain hazard insurance,’” they continued.

The appeals court therefore reversed an earlier judgement by a district court to dismiss the plaintiff’s claims on this ground, and it could unleash a wave of trouble for the servicer, who now must face the possibility that the class-action suit will bring other such stories to light.

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