Lawsuit alleges illegal increase in private mortgage insurance

When Kenisha and Greg Brantly bought their home, theyobtained a 100 percent no-down-payment home loan from SouthStar Funding LLC.However, SouthStar required the Brantlys to obtain private mortgage insurance(PMI) to minimize the lender’s risk.

The lender arranged PMI from Republic Mortgage Insurance Co.The Brantlys pay a monthly PMI premium of $590 for this insurance. In alawsuit, they contend Republic did not give them the lowest PMI rate and neverinformed them their premium was increased based on information in their creditreports.

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The Brantlys further allege Republic Mortgage Insurancenever advised them of the credit report and the Fair Credit Report Act (FCRA),which allows them to obtain a copy of that report to dispute entries. Becausethe borrowers never received an “adverse action notice,” as requiredby FCRA, they contend Republic willfully or negligently violated the FCRA.

Republic Mortgage Insurance replied this lawsuit should bereferred to binding arbitration as provided in the SouthStar home mortgage. Butthe borrowers resisted arbitration, arguing the arbitration clause in themortgage does not apply to the separate PMI. Republic argued that the mortgageand the PMI are so intertwined that arbitration should apply to both.

If you were the judge, would you rule Republic MortgageInsurance is entitled to binding arbitration of this dispute?

The judge said no!

“The lawsuit in the current case deals with RepublicMortgage’s insurance premiums, and an allegation that these premiums wereincreased due to information contained in the plaintiff’s credit histories.This claim is a statutory remedy under the Fair Credit Reporting Act and iswholly separate from any action or remedy for breach of the underlying mortgagecontract that is governed by the arbitration agreement,” the judgeemphasized.

This mortgage is not in default, nor is there any disputebetween the borrowers and the lender, the judge explained.

“Although the mortgage insurance relates to themortgage debt, the premiums of the mortgage insurance are separate and whollyindependent from the mortgage agreement,” he continued. “Theplaintiffs’ claims against Republic Mortgage do not implicate SouthStar in anywrongdoing,”

Therefore, the two agreements are not intertwined andRepublic is not entitled to binding arbitration of this dispute, he ruled. Thecase shall proceed to trial, the judge concluded.

Based on the 2005 U.S. Court of Appeals decision in Brantleyv. Republic Mortgage Insurance Co., 424 Fed.3d 392.

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Copyright 2006 Inman News

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