Berger & Montague filed a class
action complaint in the United States District Court for the
Western District of North Carolina alleging that Bank of America
requires certain borrowers to purchase wind insurance in excess of
what their mortgage contract requires at exorbitant premium
rates. On April 16, 2013, Magistrate Judge David S. Cayer
denied the defendants' Motions to Dismiss. A copy of the
Order is available here. The case is
currently in discovery.
When a lender originates or services a home equity or mortgage
loan for customers who pledge their home or condominium unit as
collateral, lenders requires proof of wind insurance as a condition
of obtaining the loan. In some states, wind insurance is
included in the typical hazard or homeowners insurance policy.
In other states, such as Florida, borrowers must purchase an
additional policy to provide protection in the case of wind
Subsequent to closing, Bank of America sends some customers form
notices informing them that their wind insurance is inadequate.
Bank of America requires that these customers purchase wind
insurance that exceeds the bank's security interest in the home or,
alternatively, exceeds the replacement cost of the home. Bank of
America then continues to send a series of letters asking for more
information and explaining Bank of America's intention to
force-place wind insurance.
This process culminates when Bank of America purchases the wind
insurance policy at a high premium (sometimes charging in excess of
$10,000 per month in premiums) and assesses the premium costs on
the homeowner. The cost of the policy is either deducted from the
home equity account or added to the mortgage balance. As a result,
the customers have no choice but to pay the premiums.