A proposed class action out of Kansas federal court claims Bank of America, N.A. has charged homeowners for a full year of hazard insurance as part of the price to redeem their homes after a foreclosure sale even though only “a small fraction” of the insurance is typically used.
Bank of America, by way of an alleged “deceptive pattern and practice going back years,” has unjustly enriched itself at the expense of “persons who are at their most financially vulnerable” by demanding payment for a full year of hazard insurance and keeping the portion typically reimbursed to homeowners, the case says.
In Kansas, homeowners who lose their homes in foreclosure proceedings have a statutory right to redeem their properties, i.e. buy back their homes from the lending bank or another purchaser, within a specified time frame, the lawsuit says. For homeowners who paid less than one-third of the original mortgage balance, the redemption period is three months, while borrowers who paid more than one-third of the original balance have 12 months after the foreclosure sale to redeem their property, according to the case.
The price to redeem a foreclosed home includes the sales price the property brought at the foreclosure sale plus certain costs incurred by the purchaser during the redemption period, including “taxes on the lands sold, insurance premiums on the improvements thereon, [and] other sums necessary to prevent waste,” the suit relays.
Per the complaint, one reimbursable expense is hazard insurance, which Bank of America sometimes purchases for properties on which it successfully bids at a foreclosure sale. According to the case, the defendant will typically purchase hazard insurance coverage for a full year “even though insurance can be purchased for shorter periods of time.”
The lawsuit claims that though “virtually all expenses” in typical real estate closings are prorated, Bank of America and its counsel “intentionally decide as part of their wrongful scheme” not to prorate hazard insurance for redemption payoff statements. This means that in instances in which Bank of America buys a full year of hazard insurance, the homeowner will be left on the hook for the price, the suit says.
“Therefore, in redemptions in which Bank of America has purchased a full year of insurance, the redeeming homeowner is required to pay that entire cost as part of the redemption,” the complaint states, alleging the bank does not disclose to the purchaser that the redemption payoff amount includes a full year of insurance.
As the lawsuit tells it, insurance companies most likely reimburse Bank of America for the unused insurance following a redemption, “as is the custom for ordinary home insurance that is purchased but goes unused when the property changes ownership during the insurable period.”
The suit alleges, however, that Bank of America does not return the reimbursed funds to redeeming homeowners, despite the fact that roughly 75 percent or more of the purchased insurance is not used in cases with a three-month redemption period.
“Rather, it keeps the funds as an undeserved windfall even though the proceeds are unearned and rightfully belong to the homeowners,” the complaint scathes.
Though the cost of a full year of hazard insurance can vary depending on a number of factors, prices can range from just under $1,000 to a much higher amount, according to the suit.
The plaintiff, who redeemed her home from Bank of America in early 2013, says the payoff amount included $2,277.60 for hazard insurance. Per the complaint, the amount was equal to a premium “for at least an entire year of coverage,” not just the three-month redemption period. If the amount demanded by Bank of America reflected one year of coverage, the figure overstated the cost of insuring the plaintiff’s property during the redemption period by about $1,135.68, the case estimates.
Moreover, Bank of America has failed to file “receipts or vouchers” to support its insurance expenditure as required by Kansas law, the suit says.
The lawsuit alleges that the bank has likely received a refund of roughly $1,129.44 for the unused insurance upon termination of the plaintiff’s policy, “even though the cost of such unused insurance was paid for by [the plaintiff].”
In mid-October, Wells Fargo was named in a similar proposed class action in which the bank was accused of charging redeeming homeowners for a full year of hazard insurance, most of which the suit says was unused and likely refunded to the bank.
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