A Pennsylvania federal court recently denied a motion to dismiss a putative class action lawsuit in which homeowners claim violations of the Real Estate Settlement Procedures Act of 1974 based on an alleged “captive reinsurance scheme” related to private mortgage insurance.

The plaintiffs allege that between January 2006 and December 2008, they obtained residential mortgage loans from National City Mortgage (“National City”), which contracted with certain primary insurers to provide private mortgage insurance. These insurers subsequently reinsured with National City’s captive reinsurer, National City Mortgage Insurance Company, Inc. (“NCMIC”), pursuant to a captive reinsurance arrangement. Under this arrangement, the primary insurers paid NCMIC a portion of the borrowers’ insurance premiums in exchange for NCMIC assuming some of the primary insurers’ risk. The plaintiffs claim this reinsurance arrangement violated RESPA’s prohibition on kickbacks because premium payments from the primary insurers to NCMIC were made in return for National City’s referral of business. According to the plaintiffs, this arrangement also violated RESPA’s prohibition on fee-splitting because it was only sham reinsurance. They allege that NCMIC provided no service in return for the portion of the insurance premiums it accepted.

Defendants moved to dismiss the complaint for failure to state a claim, making a variety of arguments. The district court denied the motion, finding that the plaintiffs were entitled to equitable tolling due to alleged fraudulent concealment by the defendants and had set out facts sufficient to meet the federal pleading standards for a violation of RESPA and unjust enrichment. White v. PNC Financial Services Group, Case No. 11-7928 (USDC E.D. Pa., August 18, 2014).

This post written by Catherine Acree.

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