Degutis v. Fin. Freedom, LLC

• Citation: 978 F.Supp.2d 1243
• Decision Date: 18 October 2013
• Docket Number: Case No. 2:12–cv–319–FtM–38DNF.
• Parties: Albert J. DEGUTIS, individually, and on behalf of all others similarly situated, Plaintiff, v. FINANCIAL FREEDOM, LLC and Financial Freedom Acquisition, LLC, Defendants.
• Court: U.S. District Court — Middle District of Florida

978 F.Supp.2d 1243

Albert J. DEGUTIS, individually, and on behalf of all others similarly situated, Plaintiff,

v.FINANCIAL FREEDOM, LLC and Financial Freedom Acquisition, LLC, Defendants.

Case No. 2:12–cv–319–FtM–38DNF.

United States District Court,

M.D. Florida,

Fort Myers Division.

Oct. 18, 2013.

John Allen Yanchunis, Sr., Rachel Soffin, Morgan & Morgan, PA, St. Petersburg, FL, for Plaintiff.

Christy Thornton Nash, Burr & Forman, LLP, Tampa, FL, Joshua H. Threadcraft, Rik S. Tozzi, Burr & Forman, LLP, Birmingham, AL, for Defendants.

ORDER¹

SHERI POLSTER CHAPPELL, District Judge.

This matter comes before the Court on Defendants' Motion to Dismiss (Doc. # 18) filed on July 30, 2012 ²; Plaintiff's Response in Opposition to Defendants' Motion to Dismiss (Doc. # 36) filed on July 19, 2013; Reply in Support of Defendants' Motion to Dismiss (Doc. # 41) filed on August 6, 2013; and Plaintiff's Surreply in Opposition to Motion to Dismiss (Doc. # 45) filed on August 28, 2013. The Motion is now ripe for review.

BACKGROUND

Plaintiff, Albert J. Degutis ³, initiated this action by filing a Class Action Complaint and Demand for Jury Trial against Financial Freedom, LLC and Financial Freedom Acquisition, LLC, on March 12, 2012, in the Twentieth Judicial Circuit in and for Lee County. (Doc. # 2). Defendants timely removed the action to this Court pursuant to the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2), on June 11, 2012. (Doc. # 1).

By way of background regarding the class allegations, the Complaint alleges that Plaintiff and other similarly situated homeowners in Florida who have or had Florida residential mortgage loans serviced by Financial Freedom, LLC between February 1, 2007 and the present, and owned by Financial Freedom Acquisition, LLC, were required to pay for “force-place” flood insurance policies. (Doc. # 2, ¶ 1). Plaintiff alleges that Defendants engaged in a common pattern and practice of force placing flood insurance even though borrowers' property was already covered by an existing policy providing flood insurance. ( Id. at ¶ 1). Plaintiff alleges that in the event that borrowers fail to maintain their flood insurance policies, rather than attempt to maintain delinquent borrowers' existing policies, Defendants commonly choose to replace borrowers' insurance policies with more expensive ones, known as “force-placed” insurance policies. Plaintiff maintains that such policies provide less coverage and are substantially more costly than the borrowers' original policies, while providing lucrative financial benefits to servicers and/or their affiliates. And further, that such policies often provide unnecessary or duplicative coverage, in that they are improperly backdated to collect premiums for time periods during which the mortgagor has no risk of loss. ( Id. at ¶ 2). Even though these policies are typical, Plaintiff alleges that the mortgage contract does not disclose that the lender or other servicers will receive a commission or reinsurance premium from force-placed insurance providers for purchasing insurance from them. The mortgage contract also does not disclose that this payment will be based upon a percentage of the cost of the premium of the force-placed insurance. Instead, the contract states to borrowers that the cost of the force-placed insurance is necessary to protect the lender's interest in the secured property. ( Id. at ¶ 15).

Plaintiff asserts that Defendants' unlawful actions include charging borrowers for unnecessary flood insurance policies, purchasing unconscionably high-priced insurance policies, having pre-arranged agreements to purchase force-placed insurance from a single company without seeking competitive bids on the open market to maximize their own profits, backdating the force-placed policies to charge for retroactive coverage, and giving and receiving “commissions” or “kickbacks” for the procurement of the force-placed policies. Plaintiff argues that these actions constitute a pattern of exploitative profiteering and self-dealing against the interest of the Plaintiff and Class Members. ( Id. at ¶ 4).

According to the Complaint, Albert J. Degutis obtained a reverse mortgage in the amount of $395,550 from Financial Freedom Senior Funding Corporation to purchase a condominium in 2006. (Doc. # 2, ¶¶ 35–36). The mortgage is now serviced by Defendant Financial Freedom and owned by Defendant Financial Freedom Acquisition. ( Id.). Beginning in August 2010, Degutis claims that even though his condominium was insured under a master policy secured by his condominium association, which provided flood coverage exceeding the unpaid principal balance on his mortgage, Defendants required him to obtain additional coverage. ( Id. at ¶¶ 39, 45.). In a letter dated August 21, 2010, Defendants demanded that Plaintiff provide proof that his condo was covered by a flood insurance policy. ( Id. at ¶ 41). On September 2, 2010, Plaintiff faxed to Defendants a copy of an insurance policy issued by Hartford Insurance Company of the Midwest, which Plaintiff alleges documented flood insurance coverage on Plaintiffs condo. ( Id.). On September 7, 2010, Defendants demanded the Plaintiff provide proof that his property was covered by flood insurance. Defendants stated that Plaintiff was required to maintain coverage in the amount of the replacement cost or the maximum of $250,000. ( Id. at ¶ 42). Defendants stated that unless its demands were met, it would force place a policy of insurance. ( Id.). The amount it claimed Plaintiff would owe on this policy was the annual sum of $5,885.25 for a flood policy providing coverage of $250,000. ( Id.).

In a letter dated October 5, 2010, Defendants stated that Plaintiff had 15 days to provide proof of insurance or it would force place a policy of flood insurance. ( Id. at ¶ 43). On October 16, 2010, Plaintiff faxed a copy of the commercial building valuation report from his condo and a copy of the declarations page from the flood insurance policy which had been secured by his condo association providing flood coverage on the property. ( Id.). Despite the receipt of this proof, Plaintiff alleges that Defendants insisted that Plaintiff secure an additional policy of flood insurance providing $50,000 more in coverage than the $3,745.69 which was provided by the condo policy. ( Id. at ¶ 44). On October 20, 2010, Defendants claimed Plaintiffs condo was not adequately covered. In response, Plaintiff informed Defendants that the property, along with the condominium, was insured for approximately $3,800,000 under a master policy, and even dividing the number of units in the condominium, 20, by the amount of the total insurance coverage, this amounted to an average of $190,000 per unit, which was more than enough owed by Plaintiff on the mortgage. ( Id. at ¶ 45). Plaintiff stated also that more coverage would be obtained if the next insurance survey warranted an increase. ( Id. at ¶ 45). In a letter dated November 23, 2010, Defendants insisted in its demand for additional coverage of $50,000 and stated it would obtain a policy which provided this insurance at a charge of $258.13. ( Id. at ¶ 46). Plaintiff responded to this demand by continuing to assert his position that insurance coverage on the property was sufficient. ( Id.).

On December 2, 2010, Defendants acknowledged receipt of Plaintiffs correspondence in a letter stating:

Financial Freedom is in receipt of your correspondence regarding the hazard insurance for the above loan and we appreciate the opportunity to respond.

In response to your previous correspondence requesting information regarding the above referenced loan, please be advised that your loan servicing history is in the process of being researched. Once we have completed our research, we will provide you with a written response addressing each of your concerns.

We are committed to servicing our customers through a passion for superior customer service while cultivating a culture of trust, honesty and integrity. We will therefore do our best to resolve your concerns in a manner that is satisfactory to everyone involve.

There is no need for you to respond to this letter, unless you have not received a response from us within 60 business days from the date you sent your initial request.

Thank you for your correspondence in this matter. If you have questions, please contact our Customer Service Department, Monday through Friday, 7:00 a.m. to 5:30 p.m. (Pacific Time) at (866) 872–2904. For faster service, we invite you to contact us during our non-peak hours at 9:30 a.m. to 12:30 p.m. (Pacific Time), Monday through Friday.

Sincerely,

Insurance Department

Financial Freedom Acquisition, LLC

( Id. at ¶ 47).

Seven months later, in a letter dated July 26, 2011, Defendants renewed its demand for additional flood insurance coverage. On August 4, 2011, Plaintiff faxed to Defendants a copy of those portions of an insurance policy which demonstrated that the Hartford Insurance Company of the Midwest had issued a policy of insurance providing coverage for Plaintiff. Among the documents sent to Defendants was a form titled “Flood Policy Declarations.” ( Id. at ¶ 48). On August 5, 2011, Defendants sent Plaintiff a letter wherein in stated that its records indicated that an existing flood policy with Hartford would expire on August 24, 2011, and it wanted proof that the policy would continue after that date with Hartford or some other insurance company. ( Id. at ¶ 49).

On August 16, 2011, Defendants sent a letter to Plaintiff informing him that he was required to purchase adequate flood insurance. Defendants stated further that to maintain adequate insurance, it required that the Plaintiff's flood insurance coverage be in an amount at least equal to the lesser of (1) the last known amount of homeowners insurance that be had purchased or (2) the maximum coverage under The National Flood Insurance Program which it stated was $250,000.00 for residential...