Home lenders and mortgage insurance companies are battling in federal and state courts over denied claims — though at least one case was peacefully resolved. Some of the cases are tangled up in corporate bankruptcies.
MGIC Investment Corp. said last month that its Mortgage Guaranty Insurance Corp. subsidiary had reached a settlement with Freddie Mac and its regulator, the Federal Housing Finance Agency, to resolve a pool insurance dispute.
The mortgage insurer originally announced on May 8, 2012, that it had sued Freddie and the FHFA in a Milwaukee federal court. MGIC is paying the secondary lender $268 million to satisfy its obligations, including $100 million up-front and the rest over 48 months.
Old Republic International Corp. disclosed in a Nov. 2 filing with the Securities and Exchange Commission that it was named as a defendant, along with various lenders, in two class actions filed in U.S. District Court for the Central District of California; one class action filed in U.S. District Court for the Eastern District of California; four class actions filed in U.S. District Court for the Eastern District of Pennsylvania, and two class actions filed in U.S. District Court for the Western District of Pennsylvania.
The lawsuits, filed by the same law firms between Dec. 9, 2011, and Oct. 3, 2012, each allege that the lenders’ captive insurance subsidiaries were paid in violation of the anti-kickback and fee splitting prohibitions of Sections 8(a) and 8(b) of the Real Estate Settlement Procedures Act. Each of the lawsuits, which had not been class certified as of the date of the SEC filing, seek unspecified damages, costs, fees and the return of the allegedly improper payments.
Old Republic was accused in a purported class action filed in California state court of breaching home warranty contracts in violation of various provisions of the California Civil Code and Business and Professions Code. The case was removed to U.S. District Court for the Central District of California on Oct. 24.
PNC Bank, N.A., filed a lawsuit in a Pennsylvania federal court in October against Republic Mortgage Insurance Co. disputing claim denials on an unspecified number of loans insured for PNC-subsidiary National City Corp., according to Old Republic’s SEC filing.
For its part, Old Republic “and its subsidiaries have defended and intend to continue defending vigorously against each of the aforementioned actions.”
A lawsuit filed in February 2011 in an Ohio federal court by the Federal Deposit Insurance Corp. on behalf of failed AmTrust Bank alleged that Old Republic’s wrongly denied claims on 750 loans for more than $46 million. AmTrust failed in December 2009. Old Republic said that the sale by the FDIC of the loans to New York Community Bank “radically and materially altered the risk to be insured under the policy.”
Last April, summary judgment was awarded to the FDIC on the issue that Old Republic could not retroactively terminate the policy. Summary judgment was also awarded to the FDIC on the issue that Old Republic cannot avoid liability based on proposal terms contradictory to policy terms. But the remainder of the FDIC’s summary judgment motion and Old Republic’s motion for summary judgment were denied.
A post-confirmation class action to rescind contracts that was filed by Triad Guaranty Insurance Co. in the American Home Mortgage Holding bankruptcy case was dismissed in August 2012. Triad failed to provide sufficient reason to conclude that its action is integral to the restructuring process, according to the decision from the bankruptcy judge.
“Triad has failed to provide sufficient reason to conclude that Triad’s action is integral to the restructuring process,” the decision stated. “More specifically, Triad has failed to meet its burden to demonstrate a sufficient connection — a ‘close nexus’ — between Triad’s post-confirmation rescission action and the debtors’ plan or proceeding. In addition, Triad’s action arises solely under state law, independent of the bankruptcy petition. The class action does not ‘arise in’ the bankruptcy or ‘arise under’ the Bankruptcy Code. On the face of the amended complaint, this court does not have jurisdiction over Triad’s dispute with the putative defensive class.”
The PMI Group Inc., the former parent of PMI Mortgage Insurance Co. that filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in U.S. Bankruptcy Court for the District of Delaware on Nov. 23, 2011, sued the Arizona Department of Insurance in August, according to a story from Law360. PMI sought to preserve its control over $1.3 billion in tax assets that it wants to use to pay back creditors.
