Persaud v. Bank of Am., N.A.
| Decision Date | 27 August 2014 |
| Docket Number | CASE NO. 14-21819-CIV-ALTONAGA/O'Sullivan |
| Court | U.S. District Court — Southern District of Florida |
| Parties | SAMUEL A. PERSAUD, Plaintiff, v. BANK OF AMERICA, N.A., et al., Defendants. |
THIS CAUSE came before the Court on Defendants, Bank of America, N.A. ("BOA"); U.S. Bank, N.A., as Trustee ("U.S. Bank" or "Trustee"); Countrywide Home Loans, Inc. ("Countrywide"); Nationstar Mortgage, LLC ("Nationstar"); and Lexington Insurance Company's ("Lexington['s]") (collectively, "Defendants['s]") Joint Motion . . . to Dismiss the Second Amended Complaint with Prejudice ("Motion") [ECF No. 22], filed June 13, 2014. Plaintiff, Samuel A. Persaud ("Persaud"), filed his Response . . . ("Response") [ECF No. 35] on July 9, 2014. Defendants filed their Joint Reply . . . ("Reply") [ECF No. 37] on July 24, 2014. The Court has carefully considered the parties' written submissions, oral arguments, and applicable law.
This matter arises out of a promissory note ("Note") and mortgage ("Mortgage") on real property in Miami-Dade County. . Plaintiff executed the Note and Mortgage with Countrywide on February 7, 2005, agreeing to repay the debt in regular installments by March 1, 2035. . The Mortgage was subsequentlytransferred to BOA, Countrywide's successor in interest.2 (See SAC ¶¶ 9-10). According to BOA, U.S. Bank owned the Note and Mortgage in 2005, while BOA serviced the loan as U.S. Bank's agent. (See id. ¶¶ 14-16). Subsequently, Nationstar became the servicer of the mortgage as BOA's successor in interest and currently services the loan. (See id. ¶ 13).
Plaintiff's Mortgage includes the following property insurance provision:
Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term "extended coverage," and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance. This insurance shall be maintained in the amounts (including deductible levels) and for the periods that Lender requires. . . . If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower's equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. Any amounts disbursed by lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.
(Id. ¶ 41 (quoting Mortgage § 5)). The Mortgage also states, "Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property." (Id. ¶ 42 (emphasis in original) (quoting Mortgage § 9)).
At some time after entering into the Mortgage, Plaintiff's insurance policy lapsed. (See id. ¶ 51). Plaintiff then paid the policy before the lender force-placed insurance on the property. (See id.). As a practice, (Id. ¶ 44 (alterations added)). BOA requires or permits its insurer Lexington to automatically force-place insurance when a borrower's insurance policy lapses. (See id. ¶ 45). In such event, the mortgage agreement permits "the lender to obtain force-placed coverage and charge the premium to the borrower rather than declare the borrow[er] in default." (Id. ¶ 40 (alteration added)). If the borrower's insurance lapse is not immediately discovered, the lender or servicer charges the borrower "past premiums" for "retroactive coverage[,]" even in the "absence of any claim or damage to the property during the period of lapse . . . ." (Id. ¶ 45 (alterations added)).
"Once coverage is forced on the property, the lender or servicer charges the borrower for the insurance premiums and automatically deducts the amount from the borrower's mortgage escrow account, or adds it to the balance of the borrower's loan." (Id. ¶ 46 ()). Pursuant to this practice:
The lender or servicer then pays the premium to the insurer (Defendant [Lexington] here) who then kicks back a portion of the premium to the mortgage lender and/or servicer (Defendant BOA here) or an affiliate of the lender or servicer as a "commission." If to the lender's or servicer's affiliate, the affiliate then shares a portion of that payment with the lender or servicer, sometime in the form of "soft dollar" credits. The money paid back to the lender or serv[ic]er's affiliate is not given in exchange for any services provided by the affiliate; it is simply grease to keep the force-placed machine moving.
(Id. ¶¶ 47-48 (capitalization deleted; alterations added)).
The lender's actions "are unconscionable and done in bad faith with the sole objective to maximize profits." (Id. ¶ 51). BOA is incentivized to force-place insurance policies "with inflated premiums . . . because the higher the cost of the insurance policy, the higher the kickback." (Id. ¶ 49 (alteration added)). Plaintiff "was charged hyper-inflated and illegitimate non-competitive 'premiums' for the force-placed insurance that included undisclosed kickbacksto the Defendant, BOA or [its] affiliates . . . ." (Id. ¶ 51 (alterations added)).
After the borrower's policy lapsed, BOA charged Plaintiff $16,858.36 for "subsidence insurance" without notice on July 13, 2009. (Id. ¶ 18). BOA created an escrow account with a negative balance and charged Plaintiff's account. (See id. ¶ 46 n. 5). BOA failed to remove the total charge for subsidence insurance from Plaintiff's account and continued charging Plaintiff. (See id. ¶ 21). Because the cost of the force-placed insurance premium is added to Plaintiff's Mortgage balance, the total interest paid by the borrower to the lender over the life of the loan is increased. (See id. ¶ 50).
Upon learning of the charge, Plaintiff made various efforts to gather information from BOA and dispute the unauthorized insurance charge. (See id. ¶¶ 20-26). Plaintiff called BOA on multiple occasions and mailed BOA certified letters dated October 22, 2009; January 8, 2010; February 4, 2010; March 9, 2010; April 27, 2010; and July 5, 2011. (See id.). BOA never responded to or acknowledged receipt of Plaintiff's correspondence. (See id. ¶ 27). "BOA and the other Defendants by virtue of privity and/or agency relationship have failed to remove the unauthorized charge," continue to charge Plaintiff late fees and interest, and improperly established an escrow account for Plaintiff's account. (Id. ¶ 28).
According to an American Banker article published November 10, 2010, mortgage lenders and servicers have engaged in questionable practices concerning "force-placed insurance." (Id. ¶ 29). Lenders and servicers force-place insurance when a borrower's insurance policy lapses or the borrower fails to maintain sufficient hazard, flood, or wind insurance coverage on the property securing the loan. (See id. ¶ 30). When a lender force-places a new policy on the property, it charges the borrower premiums. (See id.). The practice of force-placed insurance is extremely profitable to mortgage lenders and servicers.(See id. ¶¶ 30-31).
Insurers and affiliates enter into exclusive relationships with major mortgage lenders and servicers to provide force-placed insurance policies, often paying a percentage of the force-placed premium later charged to the borrower and offering subsidized administrative services to the lender or servicer. (See id. ¶ 31). Lenders often require borrowers to pay for backdated insurance coverage, even if no claims were made or coverage exceeds the legal requirements. (See id. ¶ 32). This practice artificially inflates the premiums charged to borrowers, resulting in premiums up to ten times greater than those available to consumers in the open market. (See id. ¶ 34). Plaintiff does not specifically challenge the practice of force-placed insurance but contests the manner in which Defendants force-placed his insurance without notice. (See id. ¶ 30).
The SAC contains seven counts. Count I is a claim for breach of contract against Defendants for acting in violation of Plaintiff's Mortgage. (See id. ¶¶ 52-64). Count II is a claim for breach of implied covenant of good faith and fair dealing in selecting a force-placed insurance policy. (See id. ¶¶ 65-73). In Count III, Plaintiff seeks damages for unjust enrichment against BOA, U.S. Bank, and Nationstar for retaining benefits from the force-placed insurance policy at Plaintiff's expense. (See id. ¶¶ 74-85). Count IV states a claim for breach of fiduciary duty owed to the borrower. (See id. ¶¶ 86-91). Count V states a claim for fraud in the inducement against BOA and U.S. Bank for falsely representing to Plaintiff he would not need to have an escrow account for insurance or tax purposes. (See id. ¶¶ 92-97). In Count VI, Plaintiff raises an unjust enrichment claim against Lexington for retaining excess premiums from Plaintiff's force-placed insurance at Plaintiff's expense. (See id. ¶¶ 98-104). Last, Count VII states a claim against Lexington for tortious interference with a business relationshipfor...
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