MINNEAPOLIS (CN) – The foreclosure meltdown has led the U.S. Bank National Association to demand $24 million from First American Title Insurance Co., claiming the title company charged more than $20 million for a new product supposed to protect the bank from defaults on home loans, then walked away when the disaster came.
U.S. Bank claims the title company charged it more than $20 million in premiums and fees for its “FACT product,” and new “service” that First American introduced in 2001. (Sneer quotes in complaint.)
First American claimed its product would “benefit institutions such as U.S. Bank when making home equity loans to consumers, by simultaneously allowing the lender to make faster lending decisions and insuring the lender against the risk that such faster decisions might fail to uncover, among other things, undisclosed intervening liens, title defects, errors in legal description, or vesting problems that would impair the lender’s collateral in the even the customer later defaults on the loan,” according to the federal complaint.
U.S. Bank says it paid more than $20 million in premiums and fees for the “service” from 2003 to 2008. The bank adds that for the first few years, it had no problems being compensated for nearly all of its FACT claims arising from borrower defaults on home equity loans.
But since the economic meltdown spurred by the collapse of the housing market and associated securities, U.S. Bank says, First American has denied more than 240 of its FACT claims, “totaling over $24 million in covered losses.”
And First American has refused to approve or deny another 70 for another $7.4 million in covered losses, the bank says.
“While the FSA [FACT Service Agreement] has not been renewed, coverage under the FACT policy continues for the tens of thousands of loans that U.S. Bank processed, closed and insured under the FACT program,” the complaint states.
“First American’s denial of plaintiffs’ FACT claims and its refusal to timely approve or deny other FACT claims has been done with such frequency as to become a general business practice of First American. On information and belief, First American also has adopted this general practice of deny and delay with respect to other lenders which purchased First American’s FACT product.”
U.S. Bank seeks damages for unfair insurance practices, false advertising, consumer fraud, negligent misrepresentation, bad faith, breach of contract, and other charges. It is represented by Richard Hagstrom with Zelle Hofmann Voelbel & Mason.