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Friday, June 14, 2024 | Back issues
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Bank of America Kisses Kickback Claims Goodbye

(CN) - A class waited too long to accuse Bank of America of funneling unlawful kickbacks to reinsurance subsidiaries, costing borrowers more than $284.7 million, a federal judge ruled.

Over a year of litigation whittled the 2012 lawsuit to one in which Thomas Riddle and Marilyn Fischer alleged that Bank of America and private mortgage insurance companies had violated the Real Estate Settlement Procedures Act (RESPA) with a scheme involving kickbacks and unearned fees.

Riddle and Fischer claimed that the defendants funneled unlawful kickbacks from private mortgage insurers to lender-created reinsurance subsidiaries, letting reinsurers reap hundreds of millions of dollars in premiums while assuming little or no actual risk.

The reinsurance contracts "effectively allowed the reinsurer to opt out of the scheme at its choosing and without suffering adverse consequences," according to the amended complaint.

Meanwhile, borrowers allegedly paid at least $284.7 million all together for mortgage insurance.

Senior U.S. District Judge Berle Schiller in Philadelphia sent the case on to limited discovery this past April but awarded the defendants summary judgment last week after finding that RESPA's one-year statute of limitations had elapsed.

The clock begins running upon a given loan's closing, and in this case Riddle and Fischer's loans each closed in 2005.

Schiller disagreed that the plaintiffs could toll the statute by claiming that the defendants "knowingly and actively concealed the basis for plaintiffs' claims."

"The court has afforded plaintiffs ample opportunity to make their case for equitable tolling," Schiller wrote. "The record is now clear that plaintiffs did not diligently pursue their claims. Rather, they elected to pursue litigation after they were pursued by lawyers who believed that they may have claims."

There is no evidence that the plaintiffs were misled by United Guaranty Residential Mortgage Insurance and Genworth Mortgage Insurance, according to the ruling.

"The record is devoid of evidence that Genworth or United did anything to mislead Riddle or Fischer," Schiller wrote. "Indeed, the record lacks evidence that Genworth and United had any contact with plaintiffs."

Schiller also rejected the "circular" claim that the defendants failed to disclose their alleged violations of RESPA.

"Plaintiffs are trying to turn defendants' failure to inform them that they were running a scheme in violation of RESPA into an affirmative act of concealment," Schiller wrote. "This is unsurprising because silence is insufficient to toll the statute of limitations in RESPA cases; the defendant must have performed an independent act of concealment upon which the plaintiff justifiably relied. But silence is exactly what plaintiffs are relying on; defendants purportedly did not tell plaintiffs that they were engaged in conduct that violated federal law."

Finally, the judge threw out the plaintiffs' new claim that the defendants submitted false documentation to Fannie Mae to gain approval as qualified mortgage insurers.

"This new theory, which appeared nowhere in plaintiffs' original allegations, is a red herring that does not alter the court's analysis," Schiller wrote.

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