Kickback Claims Will Follow Bank of America

(CN) - Bank of America cannot dismiss claims that it funneled unlawful kickbacks from private mortgage insurers to reinsurance subsidiaries, costing borrowers more than $284.7 million, a federal judge ruled.

In a putative federal class action, Thomas Riddle, Marilyn Fischer and Jeffrey Stanton said that Bank of America and its affiliates funneled unlawful kickbacks from private mortgage insurers to the reinsurance subsidiaries that the lenders created, so that the reinsurers received hundreds of millions of dollars in premiums but assumed little or no actual risk.

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

The borrowers meanwhile allegedly paid at least $284.7 million all together for mortgage insurance.

Claiming that the statute of limitations under the Real Estate Settlement Procedures Act had lapsed, Bank of America and the affiliates moved to dismiss. The class countered that the statute should be tolled because the defendants "knowingly and actively concealed the basis for plaintiffs' claims."

Senior U.S. District Judge Berle Schiller in Philadelphia refused to dismiss the action on April 11.

"Plaintiffs have alleged that their mortgage documents affirmatively misled them to believe that kickbacks and unearned fees were actually fees for services rendered," Schiller wrote. "This court agrees that '[a]llegations of misleading mortgage documents are sufficient to allege equitable tolling in a RESPA case.' Barlee, 2013 WL 706091. Plaintiffs argue that defendants' form documents merely informed them of the possibility that their loans would be insured, but failed to accurately inform them if their loans were indeed insured. They also claim that they were never told that the agreements failed to transfer risk as required to be legitimate and that 'defendants misrepresented the relationship between Bank of America, [Bank of America Reinsurance Corp.] BOA RE, and the [private mortgage insurance] PMI providers' and failed to disclose which entity would insure their loans. Whether these arguments ultimately bear fruit must be decided at a later date. At this stage, however, plaintiffs' allegations that defendants dressed up an illegal scheme to appear as a legitimate transaction is sufficient to deny defendants' motion to dismiss on the issue of equitable tolling."

Bank of America's reliance on RESPA's statute of limitations failed.

"If plaintiffs are able to prove the facts alleged in their amended complaint, they may be entitled to have the statute of limitations equitably tolled," Schiller wrote. "Therefore, the court will deny the motion to dismiss to afford the parties the opportunity to develop the record relating to plaintiffs' equitable tolling allegations. However, defendants have raised legitimate arguments about the timeliness of plaintiffs' claims and that plaintiffs failed to exercise due diligence in discovering those claims. Therefore, before the parties pour significant time and resources into the merits of plaintiffs' claims and whether this litigation can be certified as a class action, the court will afford the parties an opportunity to conduct limited discovery on the statute of limitations issue."

Bank of America Corp. remains as a defendant along with United Guaranty Residential Insurance Co., Radian Guaranty Inc., and Genworth Mortgage Insurance Corp. Previously, the plaintiffs voluntarily dismissed their claims against Triad Guaranty Insurance Corp., Republic Mortgage Insurance Co., and Mortgage Guaranty Insurance Corp.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit