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BNY Force Placed Insurance Lawsuit

Force Placed Insurance BNY

Force Placed Insurance 2

BNY Force Placed Insurance Lawsuit

Forced Placed Insurance News:  On May 26, 2011, the Knights of Columbus filed a “complaint” versus the Bank of New York Mellon.  The complaint was filed in the Supreme Court of the State of New York. 

The Knights of Columbus’ complaint was 29 pages, and it seeks an accounting of two trusts that hold mortgage loans.  These loans are serviced by Bank of America, and BNY is listed as the Trustee in which the Knights of Columbus corporation is invested in.  The attorney for the Knights of Columbus, Peter N. Tsapatsaris, makes several references to about the Force Placed Insurance Scam that Bank of America’s servicing wing has taken part in…

Force Placed Insurance Fraud Allegations

Below is an excerpt concerning force placed insurance within the 29 page document:

“74. A November 10, 2010 article in AMERICAN BANKER describes the Master Servicer’s practice of using an affiliate to force-place insurance at inflated rates on homeowners struggling to make payments, with investors like Plaintiff ultimately bearing the cost:

Nominally purchased to protect the owners of mortgage-backed securities, such “force-placed” insurance can be 10 times as costly as regular policies, raising struggling homeowners’ debt loads, pushing them toward foreclosure — and worsening the loss to investors on each defaulted loan. Evidence of abuses and self-dealing in the force-placed insurance industry suggests that there may be far larger problems in how servicers are handling distressed loans than the sloppy document recording that has been the recent focus of industry woes.

Behind banks’ servicing insurance practices lie conflicts of interest that align servicers and their insurer partners against borrowers and investors. Bank of America Corp. owns a force-placed insurance subsidiary, and most other major servicers receive commissions or reinsurance fees on the very same policies they purchase on investors’ and borrowers’ behalf. “There’s no arm’s-length transaction here, and that creates all sorts of incentives for the servicer toforce-place excessive insurance and overcharge consumers for policies that provide minimal benefit,” said Diane Thompson, of counsel for the National Consumer Law Center. “Servicers and insurers have turned this into a gravy train.”

Foreclosure defense and legal aid attorneys say force-placed insurance is found on most of the severely delinquent loans in this country. If so, the cost to investors may well be in the billions of dollars. With little regulatory oversight or even private investor awareness, force-placed insurance has helped make drawn-out foreclosures lucrative for servicers — far more so, in some cases, than helping a borrower return to performing status. As the intermediary between borrower and investor, servicers appear to be benefitingthemselves at the expense of both.

75. As the AMERICAN BANKER article asserts, force-placed insurance at inflated rates damages Plaintiff and other investors in the Trusts in two ways. First, force-placingexorbitant insurance premiums on a struggling borrower makes the borrower less likely to recover from the default and make payments on the loan in the future. Second, if the borrower fails to pay the exorbitant premium, as most of them do, then the Master Servicer collects those payments from the proceeds of a foreclosure before passing theremaining funds through to the Trust. By thus reducing the amount paid to each Trustfrom the foreclosure sale, the Master Servicer has effectively charged its exorbitant premiums to the Trust.

76. Further, well-respected analyst Laurie Goodman notes that “by extending time to foreclosure, Bank of America/Countrywide are not only able to obtain hefty late fees(which payment is at the top of the waterfall at liquidation; paid before investors recovera single dime), but they are also profiting though their Balboa subsidiary.” AMHERST MORTGAGE INSIGHT, May 20, 2010, at 23.77. Charges for unnecessary insurance coverage at inflated rates increases the losses to investors associated with defaulted loans while benefiting the Master Servicer and itsaffiliates.

78. Without an accounting, the Trusts’ beneficiaries have no means of determining whether each Trust has been charged for these unnecessary or marked-up force-placedinsurance premiums and/or whether such charges are likely to be incurred in the future.”

For the entire complaint, please check out Knights of Columbus v. Bank of New York Mellon, 651442-2011, New York State Supreme Court.

Force Placed Insurance Conclusion

This is just another window into Force Placed Insurance fraud that is going on in the U.S. real estate market.  Everyone knows what is going on, who the players are, who is benefitting, and how much money it is costing the American public…directly and indirectly.