FIRST DECISION OF ITS KIND.  FIRST OF TWO "ORLANDO RULINGS."

The dispositive ruling in Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2104-Orl-31KRS, 2016 WL 1559142 (M.D. Fla. April 18, 2016), is a ground-breaking decision that calls for wide circulation.  The Sekula Court held that a mortgage servicer faces the risk of liability when the mortgage servicer adds unauthorized charges to a homeowner's monthly mortgage premium for the kickbacks which the servicer and the lender receive from a force-placed insurance company.

This is one of relatively few rulings on the subject in the nation and it is believed to be the first decision on the subject in Orlando.  (A mortgage servicer is the lender's agent.  A mortgage servicer receives and deposits the monthly payment on a mortgage, hires people to track whether the property and insurance are kept up, or tracks these things itself, and forces insurance premiums on the homeowner when it, the servicer, decides that force-placed insurance is in order.)

The following account is taken from an earlier article on the case in Insurance Claims and Issues Blog.  The decision in this case cries out for wide dissemination beyond Orlando and beyond Florida.

The Court in this case was of the view that the mortgage servicer acted within the terms of the mortgage both by force-placing an insurance policy with limits much higher than the value of the home insured, and by force-placing an insurance premium in an amount that was 13 times greater than what the homeowners found for themselves.

The essential alleged fact was instead that the mortgage servicer allegedly "exceeded the authority provided in [the mortgage agreement] to force-place insurance" by inflating the premium that the homeowners had to pay by including the amount of kickbacks allegedly paid by the insurance carrier to the mortgage servicer.   Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2104-Orl-31KRS, 2016 WL 1559142, at *3 (M.D. Fla. April 18, 2016).

That is the single most important fact in lender force-placed insurance practices cases filed across the United States:  The lender or its agent the mortgage servicer imposed unauthorized charges and hid them in the force-placed insurance premium, not that the lender or servicer charged a lot of money.  That essential fact has successfully supported a multitude of claims against lenders' and servicers' motions to dismiss.  In this case, that fact allegation successfully supported the homeowners' claim for breach of contract.

Similarly, "an undisclosed kickback would be a violation of that implied duty [of good faith]."   Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2104-Orl-31KRS, 2016 WL 1559142, at *4 (M.D. Fla. April 18, 2016).  For this reason, the homeowners' alleged claim of a breach of the implied covenant of good faith also successfully withstood the servicer's motion to dismiss in the Sekula case.

The same Court later issued further noteworthy rulings in the Sekula case.  The Court's rulings on the affirmative defense of res judicata, and again on the sufficiency of the plaintiffs' bad-faith claims, were rendered on August 15, 2016.   Sekula v. Residential Credit Solutions, Inc., No: 6:15-cv-2104-Orl-31KRS, 2016 WL 4272203 (M.D. Fla. August 15, 2016).

These rulings are themselves worth a national look, at length and in context.  They will be the subject of a future article in this space.

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