M.I. Class Action Continues Against Countrywide

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10 · 29 · 09

An appeals court has reportedly overturned a decision to dismiss a class action against Countrywide Financial Corp., leaving the formerly independent company — and possibly some of its competitors — facing further litigation. At issue are alleged violations of the Real Estate Settlement Procedures Act that are tied to mortgage insurance.

The Third Circuit Court of Appeals in Pennsylvania yesterday overturned a 2008 decision by the Eastern District of Pennsylvania to dismiss a class action against Countrywide, according to an announcement today from the plaintiffs’ attorneys, Barroway Topaz Kessler Meltzer & Check LLP.

The lawsuit was originally filed in December 2006, the statement said. The lower court reportedly held that borrowers didn’t satisfy the injury-in-fact standing requirement of Article III of the U.S. Constitution.

Barroway Topaz said the Bank of America Corp. subsidiary violated RESPA on loans to “hundreds-of-thousands of borrowers.”

Countrywide limited borrowers to seven mortgage insurers based on a rotation that disregarded price, the attorneys said. It then required that its subsidiary, Balboa Reinsurance Co., reinsure their policies. The “captive re-insurer” collected $892 million in premiums between 2000 and 2006, though it paid out no claims — a situation that the Circuit panel reportedly defined as “kickbacks.”

The plaintiffs allege that they wound up being overcharged for mortgage insurance as a result of the alleged scheme.

“The court found that RESPA authorizes suits by individuals who receive a loan accompanied by an alleged kickback, and such suits would meet the Article III standing requirement,” according to the news release. “Borrowers were overcharged for mortgage insurance and, as discussed in the Third Circuit decision, subjected to home loan settlement services tainted by unlawful kickbacks and non-competitive referrals of vital business.”

A Countrywide spokeswoman and spokesman didn’t immediately respond to a request for comment.

But Barroway Topaz said Countrywide argued that the borrowers’ claims should be barred based on the “filed rate” doctrine, which reportedly provides that a rate filed with a governing regulatory agency is unassailable in judicial proceedings.

The law firm said plaintiffs and the putative class of affected Countrywide borrowers might be entitled to treble damages equal to three times the cost of their mortgage insurance under the RESPA statute.

The case will move forward as a result of Wednesday’s decision.

Barroway Topaz said reinsurance litigation it has filed against Washington Mutual, GMAC and Wells Fargo has been stayed pending the outcome of the Countrywide case.

Alston v. Countrywide Financial Corporation.

Case No. 08-4334, December 2006 (Eastern District of Pennsylvania).

Mortgage Expert

Mortgage Daily Staff



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