United States District Court, D. Hawaii
JULIA WIECK, on behalf of herself and all others similarly situated, Plaintiff,
CIT GROUP, INC.; CIT BANK, N.A.; FINANCIAL FREEDOM; SEATTLE SPECIALTY INSURANCE SERVICES, INC.; CERTAIN UNDERWRITERS OF LLOYD'S, LONDON; and, GREAT LAKES REINSURANCE UK, PLC, Defendants.
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO
DISMISS, ECF NOS. 55, 56 & 59, AND GRANTING
PLAINTIFF'S MOTION REQUESTING JUDICIAL NOTICE OF OFFICIAL
GOVERNMENT REPORTS, ECF NO. 67
MICHAEL SEABRIGHT CHIEF UNITED STATES DISTRICT JUDGE
putative class action, Plaintiff Julia Wieck
(“Plaintiff” or “Wieck”) seeks
damages and injunctive relief on behalf of herself and others
similarly situated, alleging several causes of action based
on lender-placed insurance (“LPI”) or
“force-placed” insurance on her reverse mortgage
- specifically, hurricane coverage. (Throughout this Order,
the court refers to LPI and force-placed insurance
interchangeably.) Wieck claims Defendants overcharged her and
improperly benefitted from the placement in violation of
state and federal laws. Three sets of Defendants have filed
Motions to Dismiss the First Amended Complaint
(“FAC”). ECF Nos. 55, 56, 59. Based on the
following, the Motions are GRANTED in PART and DENIED in
73-page FAC, ECF No. 15, makes both individual and class
allegations. It bases federal jurisdiction on the Class
Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 -
it alleges minimal diversity of citizenship under 28 U.S.C.
§ 1332(d)(2)(A); an aggregated amount-in-controversy of
over $5, 000, 000 under 28 U.S.C. § 1332(d)(6); and a
class of over 100 members under 28 U.S.C. §
1332(d)(5)(B). Given the FAC's length and that it is very
premature to address class matters, the court does not
reiterate all the pertinent allegations of the FAC. Rather,
the court focuses on factual allegations as to Wieck to
examine whether she has alleged sufficient facts to withstand
the Motions to Dismiss. And in so doing, the court sets forth
only the essential allegations as necessary to understand the
nature of Wieck's claims. Further details are also
provided in the appropriate discussion sections that follow.
purposes of these Motions, the court assumes the following
factual allegations are true. See, e.g., Turner
v. City & Cty. of S.F., 788 F.3d 1206, 1210 (9th
Cir. 2015) (“In assessing whether a party has stated a
claim upon which relief can be granted, a court must take all
allegations of material fact as true and construe them in the
light most favorable to the nonmoving party[.]”).
Wieck Obtains a Reverse Mortgage From and Serviced by
is an 86-year old resident of Lahaina, Maui. FAC ¶ 4.
She has lived at her residence (“the Property”)
for over thirty-eight years, and obtained a reverse mortgage
on the Property from Defendant Financial Freedom Senior
Funding Corporation (“Financial Freedom”) in
2006. Id.; FAC Ex. A, ECF No. 15-1 (“Home
Equity Conversion Mortgage”).
Reverse mortgages are government backed loans that allow
Americans over the age of sixty-two (62) to borrow against
the value of their homes. Borrowers do not have to pay
interest on their reverse mortgage loan and can live in their
homes for life. A sale of the property can be used to repay
the debt. The reverse mortgage loans are backed by insurance
from the Federal Housing Administration (“FHA”).
When a loan comes due, the loan servicer can earn interest on
the loan from the FHA by meeting deadlines for certain tasks
such as getting an appraisal and starting the foreclosure
process. If the loan servicer misses the FHA deadlines, the
service is not entitled to earn interest from the FHA while
waiting for the agency to pay its claim.
FAC ¶ 17.
Traditionally, a reverse mortgage is meant to come due and
payable when the resident dies. However, there are other
events which may cause the reverse mortgage to become due and
payable, such as the borrower's failure to pay property
taxes or insurance, or the property is deemed vacant, thus
enabling the loan servicer to commence foreclosure
Id. ¶ 18.
Freedom is a division of Defendant CIT Bank, N.A. (“CIT
Bank”). FAC ¶ 5. CIT Bank is a wholly owned
subsidiary of Defendant CIT Group, Inc. (“CIT
Group”), which is a financial holding company.
Id. ¶ 7. Where appropriate, the court refers to
Financial Freedom, CIT Bank, and CIT Group collectively as
“CIT, ” and sometimes refers to actions taken by
Financial Freedom as taken by CIT.
2011, Financial Freedom originated and serviced reverse
mortgages. Financial Freedom aggressively marketed reverse
mortgages to elderly consumers . . . . In 2011, Financial
Freedom stopped making new loans and operated exclusively as
a reverse mortgage loan servicer.” Id. ¶
19. Financial Freedom was a subsidiary of IndyMac Bank, FSB,
when Wieck's loan was originated. Id.¶¶
5, 19, 65 & Ex. A. IndyMac Bank was a predecessor of
OneWest Bank FSB, which changed its charter from a federal
savings bank to a national association on February 28, 2014,
and eventually became CIT Bank, N.A. See Balettie
Decl. ¶ 5, ECF No. 55-2.
others, Wieck's reverse mortgage with CIT contains the
following potentially relevant provisions:
2. Payment of Property Charges. Borrower
shall pay all property charges consisting of taxes, ground
rents, flood and hazard insurance premiums, and special
assessments in a timely manner, and shall provide evidence of
payment to Lender, unless Lender pays property charges by
withholding funds from monthly payments due to the Borrower
or by charging such payments to a line of credit as provided
for in the Loan Agreement.
3. Fire, Flood and Other Hazard Insurance.
Borrower shall insure all improvements on the Property,
whether now in existence or subsequently erected, against any
hazards, casualties, and contingencies, including fire. This
insurance shall be maintained in the amounts, to the extent
and for the periods required by the Lender or the Secretary
of Housing and Urban Development (“Secretary”).
Borrower shall also insure all improvements on the Property,
whether now in existence or subsequently erected, against
loss by floods to the extent required by the Secretary. . . .
. . . .
5. Charges to Borrower and Protection of Lender's
Rights in the Property.
. . . .
If Borrower fails to make these payments or the property
charges required by Paragraph 2, or fails to perform any
other covenants and agreements contained in this Security
Instrument, . . . then Lender may do and pay whatever is
necessary to protect the value of the Property and
Lender's rights in the Property, including payment of
taxes, hazard insurance and other items mentioned in
To protect Lender's security in the Property, Lender
shall advance and charge to Borrower all amounts due to the
Secretary for the Mortgage Insurance Premium as defined in
the Loan Agreement as well as all sums due to the loan
servicer for servicing activities as defined in the Loan
Agreement. Any amounts disbursed by Lender under this
Paragraph shall become an additional debt of Borrower as
provided for in the Loan Agreement and shall be secured by
this Security Instrument.
6. Inspection. Lender or its agent may enter
on, inspect or make appraisals of the Property in a
reasonable manner and at reasonable times provided that
Lender shall give the Borrower notice prior to any inspection
or appraisal specifying a purpose for the inspection or
appraisal which must be related to Lender's interest in
the Property. If the Property is vacant or abandoned or the
loan is in default, Lender may take reasonable action to
protect and preserve such vacant or abandoned Property
without notice to the Borrower.
. . . .
9. Grounds for Acceleration of Debt.
. . . .
(b) Due and Payable with Secretary Approval.
Lender may require immediate payment in full of all sums
secured by this Security Instrument, upon approval of the
. . . .
(iii) An obligation of the Borrower under this Security
Instrument is not performed.
FAC ¶ 66 (language modified as in Mortgage, Ex. A).
“Windstorm (including hail/hurricane)” Coverage
is Force Placed on Wieck's Mortgage
makes various allegations about whether Wieck had
“windstorm” coverage, whether she initially
understood that separate hurricane coverage was required, and
whether CIT accepted or approved the mortgage in 2006 without
requiring hurricane coverage (which is often excluded from
general hazard property insurance, and requires a separate
rider). FAC ¶¶ 67-69. But the parties essentially
agree (at least for purposes of these Motions) that some kind
of coverage against damage from hurricanes is required under
the mortgage - and the fundamental dispute alleged in the FAC
stems from this requirement. Wieck also does not dispute that
CIT is allowed to force-place coverage if necessary. Rather,
the dispute centers on the manner and terms upon which such
coverage is placed.
or around August 24, 2010, Financial Freedom notified
Plaintiff that she did not have windstorm coverage, which was
incorrect, and that it would force place a windstorm
insurance policy (backdated to February 15, 2010), and would
charge Plaintiff $10, 000 plus for the policy.”
Id. ¶ 70. “A second notice from Financial
Freedom requiring Plaintiff to provide proof of windstorm
coverage was mailed on or about September 21, 2010.”
Id. The actual August 24, 2010 letter from Financial
Freedom states in pertinent part: “Financial Freedom
Acquisition LLC has been notified by your insurance provider
that your current property insurance policy does not include
windstorm coverage . . . . If your property were to incur
hurricane or other wind damage it would not be
covered.” ECF No. 55-4.
reviewing Wieck's response, FAC ¶ 71, on or about
November 15, 2010, CIT notified her that it was placing
proper windstorm coverage on her property. Id.
¶ 72. It wrote “our records indicate that you have
not provided us with acceptable evidence of windstorm
insurance; therefore, in order to protect our collateral
interest in the property, we have purchased windstorm
coverage in accordance with the terms of your Deed of
Trust/Mortgage. You are responsible for the cost of this
insurance.” Id. CIT told her:
The amount of coverage may be less than the value of your
home or real and personal property, and as a result, you may
be underinsured. The cost of this insurance may be
significantly more than the cost of insurance you can obtain
on your own. We and/or our affiliates may have received
compensation in connection with the placement of the
insurance described in this letter.
Id. It also specifically told her that “The
cost of this insurance will be charged to the outstanding
balance of your loan, and if there are insufficient funds in
your line of credit, arrangement must be made for
repayment.” Id. “The November 15, 2010
notice stated that the annual premium for the force placed
windstorm policy was $10, 086.96 - more than twenty times
more expensive than Plaintiff's hazard policy with First
Fire and Casualty Company which provided windstorm and hail
coverage.” Id. (emphasis omitted). “The
accompanying ‘Evidence of Wind Insurance' for the
force placed windstorm policy was obtained from Defendants
[Certain Underwriters of Lloyd's, London; and Great Lakes
Reinsurance (UK), PLC], both surplus lines insurance
providers which are not required to file their rates with the
state insurance departments.” Id. (This Order
refers to Certain Underwriters of Lloyd's, London as
“Lloyd's”; to Great Lakes Reinsurance (UK),
PLC as “Great Lakes;” and sometimes refers to
them collectively as “the Insurer Defendants.”).
In the November 15, 2010 notice, Financial Freedom
represented that the Effective Date for the force placed
windstorm policy placed on Plaintiff's property was
February 15, 2010 through February 15, 2011. Financial
Freedom thus had backdated the force placed windstorm policy
by nine months to cover a period of time which had already
passed during which there was no damage to Plaintiff's
Property and no claims had been made. Moreover, on October
19, 2010, Plaintiff had provided Financial Freedom with
evidence of her hazard insurance policy which included
Id. ¶ 73.
On December 2, 2010, Financial Freedom partially cancelled
the force placed windstorm policy for coverage on
Plaintiff's property from February 15, 2010 through
February 15, 2011. On December 7, 2010, Financial Freedom
cancelled this force placed windstorm policy in full and
restored Plaintiff's account balance to zero.
Id. ¶ 74.
interactions occurred between Wieck and CIT in 2013 and 2015,
where hurricane coverage was placed on Wieck's property
(with similarly-worded notices) and where allegedly
excessively high and unnecessary premiums charged to her were
eventually “refunded.” Id. ¶¶
75-87. These interactions all also involved the Insurer
Defendants and Defendant Seattle Specialty Insurance
Services, Inc. (“Seattle Specialty”), which is
“an intermediate insurance broker.” Id.
¶ 27. “Seattle Specialty provides force placed
insurance and insurance tracking services to mortgage
servicers.” Id. ¶ 8.
Since April 2013, Plaintiff has actively attempted to resolve
with Financial Freedom the wrongful charges to her reverse
mortgage from the backdated, excessively priced and
unnecessary force placed wind policy which Financial Freedom
placed on her property in March 2013, but which was backdated
to cover the period December 10, 2011 through December 10,
2012. Towards this end, Plaintiff has engaged the services of
Sandy Jolley, a reverse mortgage suitability and abuse
consultant who has provided testimony to the Federal Reserve
Board in Los Angeles concerning the wrongful acts of
Financial Freedom, its prior parent company, OneWest, and its
current parent company, CIT Bank, N.A.
Id. ¶ 88. And,
Since April 2013, Plaintiff has maintained [an] additional
Standalone Hurricane policy with Zephyr, even though this
additional insurance coverage was not required by her reverse
mortgage. The annual premium on the Zephyr policy is
approximately $600 - a fraction of the $10, 362 in annual
premiums which Financial Freedom charged to Plaintiff's
reverse mortgage for the force placed windstorm policy. Even
though Plaintiff has, at all relevant times, maintained her
hazard insurance policy with First Fire & Casualty
Company which provides the same type of windstorm and hail
coverage as the force placed windstorm policy, Plaintiff has
renewed the additional and unnecessary standalone hurricane
insurance from Zephyr each year solely in an attempt to avoid
foreclosure proceedings from Financial Freedom.
Id. ¶ 87.
The Alleged Wrongdoing
alleges that Defendants committed unlawful practices in
servicing Wieck's mortgage. See, e.g.,
id. ¶¶ 2-3. In particular, Wieck contends
that the premiums for LPI are unconscionably high not because
of their actual cost, but because Financial Freedom has an
exclusive relationship with Seattle Specialty to place
insurance with Lloyd's and Great Lakes in exchange for
unearned “commissions” and low cost or no cost
loan tracking and monitoring services from Seattle Specialty.
Id. ¶ 3. “Seattle Specialty receives a
commission from Lloyd's and Great Lakes as a percentage
of the total net written premium of force placed policies on
the Financial Freedom loan portfolio, a portion of which
Seattle Specialty then kickbacks to Financial
Freedom[.]” Id. “These kickbacks are
directly tied to the price of the force-placed insurance
policies and are usually a percentage of the total net
written premium of a policy.” Id. ¶ 27.
“This arrangement provides the mortgage servicer with
an incentive to purchase the highest priced force-placed
insurance policy that it can because the higher the cost of
the insurance policy, the higher the commission or kickback
to the mortgage servicer.” Id. ¶ 28. CIT
also improperly places “retroactive or backdated force
placed insurance policies on Plaintiff and other
borrowers' properties to cover periods of time which have
passed and during which the property was not damaged and no
claims were made[.]” Id.¶ 3.
alleges that CIT, in concert with the other Defendants,
failed to properly disclose costs and made material
misrepresentations to Wieck about these costs when notifying
her of the placing of insurance. “When a mortgage
servicer notifies a borrower that a force-placed insurance
policy has been secured and retroactively placed on the
borrower's property, the mortgage servicer routinely
fails to disclose the profits or financial windfalls it has
derived as a result, and at the borrower's expense.
Rather, the mortgage servicer falsely informs the borrower
that they are only being charged for the actual
‘cost' of the insurance.” Id. ¶
31. “Defendants have chosen insurance policies with
excessively priced insurance premiums because of the benefits
inuring to Defendants.” Id. ¶ 34.
“These policies violate the mortgage contract because
they exceed the cost of the services and are not reasonable
or appropriate to protect the note holder's interest in
the property and rights under the security instrument.”
specifically, the FAC alleges that:
Upon information and belief, Financial Freedom has negotiated
deals with Seattle Specialty and the surplus line force
placed insurance providers, [Lloyd's & Great Lakes],
whereby they receive a percentage of the cost of the total
net written premium of the force-placed insurance policies
purchased for the borrowers. This unearned commission or
kickback structure encourages the Defendants to select the
most expensive insurance policy, despite not having an
interest in the insured collateral.
Id. ¶ 42.
alleges, on information and belief, that “Seattle
Specialty [provides] improper incentives, including low cost
or below market loan tracking and portfolio monitoring
services to Financial Freedom as an additional incentive to
obtain the surplus lines force placed insurance policies
through Seattle Specialty.” Id. ¶ 43.
“Third party vendors like Seattle Specialty are not
authorized to service reverse mortgages, ”
id., and “[b]y outsourcing loan servicing and
insurance tracking to Seattle Specialty, Financial Freedom
has skirted its duty to adhere to federal regulations and
compliance standards for reverse mortgage servicing.”
Id. “Financial Freedom charges Plaintiff . . .
the full amount of the over-priced force placed insurance
policy, despite being paid unearned commissions, receiving
below cost or discounted loan tracking services, and other
kickbacks from Seattle Specialty.” Id. ¶
CIT Forecloses on Wieck's Property
August of 2016, CIT filed a foreclosure complaint against
Wieck. Id. ¶ 104. The foreclosure stemmed from
accumulated, unpaid charges for forced place insurance. The
On or around July 1, 2015, Financial Freedom sent Plaintiff a
“Property Charge Delinquency Letter” in which it
demanded payment for the backdated force placed wind
insurance policies in the amount of $13, 497.99 for 16 months
of “Hurricane Insurance” coverage from the period
November 1, 2011 to March 31, 2013. This letter was
materially misleading and false because the EOI
[(“Evidence of Insurance”)] indicated that the
force placed policy was for windstorm and hail coverage, not
Id. ¶ 92. Wieck responded (though Jolley) and
received certain responses back from Financial Freedom in
2015. Id. ¶¶ 100-03. Nevertheless,
“[o]n or around May 24, 2016, Plaintiff received a
notice that her loan had been referred to foreclosure,
” id. ¶ 98, and “a foreclosure
complaint was filed by CIT Bank, N.A. against Plaintiff in
the Second Circuit Court of the State of Hawaii, in and for
the County of Maui. The only reason Plaintiff's loan
[was] in ‘default' is because of the wrongfully
placed, excessively priced, duplicative, backdated and
unlawful force placed wind insurance.” Id.
the coverage dispute that led to the foreclosure was
resolved, and the foreclosure proceeding was closed:
On October 28, 2016, Zephyr issued Plaintiff a Standalone
Hurricane policy for the period November 30, 2011 through
November 30, 2012. Financial Freedom was provided with a copy
of the policy. On November 2, 2016, Financial Freedom
verbally represented that it would reverse the $13, 497.99 in
force placed insurance charges on Plaintiff's loan and
dismiss the foreclosure proceedings against Plaintiff. A
notice of dismissal without prejudice was filed on November
30, 2016 in the foreclosure proceeding against Ms. Wieck. To
Plaintiff's knowledge, the charges to her mortgage
account resulting from the force placed insurance have yet to
be reversed in full.
Id. ¶ 105. Meanwhile, on November 4, 2016,
Wieck filed the initial Complaint in this action. ECF No. 1.
foreclosure proceedings, however, led to an allegedly
unnecessary property inspection of Wieck's residence
right before she had filed suit. Specifically,
Several days prior to obtaining the Zephyr policy, on October
24, 2016, at 11:15 a.m. Plaintiff was startled at her
residence by a tall, thin, white man who had surmounted the
six foot fence with a locked gate which surrounds
Plaintiff's property, as well as the locked grillwork
gate at the foot of the stairs leading to Plaintiff's
front door and lanai. This strange man was on Plaintiff's
lanai, peering into Plaintiff's home. Plaintiff yelled at
the man, stating “Stop right there. How dare you enter
my property.” The man took a picture of Plaintiff's
home and leapt over the fence.
Id. ¶ 106. On November 28, 2016, CIT
“informed Plaintiff that because a third party vendor
of Financial Freedom had reported her property to be vacant
on October 20, 2016, Financial Freedom submitted a request to
HUD to call her reverse mortgage loan immediately ‘due
and payable.'” Id. ¶ 107. According
There is absolutely no reason for Financial Freedom to have
ordered an inspection of Ms. Wieck's property, or for its
third party vendor to report that the property was vacant.
Ms. Wieck has been in constant verbal and written
communication with Financial Freedom since her loan was
originally charged for force placed insurance. Moreover, Ms.
Wieck has certified numerous times to Financial Freedom, both
verbally and in writing, that she has continuously occupied
the property as her primary residence.
Id. ¶ 108. And “Financial Freedom charged
Plaintiff a $30 inspection fee for the unwarranted October
2016 inspection.” Id. ¶ 109.
the initial Complaint on November 4, 2016, Wieck filed the
FAC on January 11, 2017. ECF No. 15. The FAC alleges the
• Count One (Breach of Contract) against CIT.
• Count Two (Breach of Implied Covenant of Good Faith
and Fair Dealing) against CIT.
• Count Three (Violations of Hawaii Revised Statute
(“HRS”) § 480-2) against CIT.
• Count Four (Violations of HRS § 480-2) against
Seattle Specialty and the Insurer Defendants.
• Count Five (Tortious Interference with Business
Relationship) against Seattle Specialty and the ...