A federal district court in Alabama has dismissed twohomeowners' force-place insurance-related claims against a lenderand mortgage servicer under the Real Estate Settlement ProceduresAct (RESPA) and the Fair Debt Collection Practices Act (FDCPA).

TheCase

After homeowners obtained a loan secured by a mortgage on theirproperty in Andalusia, Alabama, Bank of America determined that theproperty was in a Special Flood Hazard Area as shown on a mappublished by the Federal Emergency Management Agency (FEMA). Bankof America required that the homeowners purchase flood insurance onthe property.

The homeowners contested the flood zone determination and didnot purchase flood insurance. Bank of America purchased floodinsurance for them and increased their monthly mortgage payments.The homeowners apparently did not make their monthly mortgagepayments and Bank of America sent them a Notice of Intent toAccelerate and Foreclose. Bank of America then transferred theservicing rights of the homeowners' account to Seterus, Inc.

Seterus notified the homeowners that their loan was in defaultand that it force-placed flood insurance on their property.

The homeowners sued Bank of America and Seterus, assertingclaims for: 1) violation of RESPA; 2) unjust enrichment/money hadand received; 3) breach of covenant of good faith and fair dealing;4) breach of contract; 5) violation of the FDCPA; and 6) negligentand wanton hiring and supervision.

After removing the case to federal court, the defendants movedto dismiss.

TheMortgage

The mortgage stated:

Borrower shall keep the improvements now existing orhereinafter erected on the Property insured against lossby fire, hazards included within the term 'extended coverage,' andany other hazards including, but not limited to, earthquakes andfloods, for which Lender requires insurance….If Borrower fails to maintain any of the coveragesdescribed above, Lender may obtain insurance coverage, at Lender'soption and Borrower's expense. Lender is under noobligation to purchase any particular type of insurance or amountof coverage. Therefore, such coverage shall cover Lender, but mightor might not protect Borrower, Borrower's equity in the Property,or the contents of the Property, against any risk, hazard orliability and might provide greater or lesser coverage than waspreviously in effect. Borrower acknowledges that the cost of theinsurance coverage so obtained might significantly exceed the costof insurance that Borrower could have obtained. Any amountsdisbursed by lender under this Section 5, shall become additionaldebt of Borrower secured by this Security Instrument. These amountsshall bear interest at the Note rate from the date of disbursementand shall be payable, with such interest, upon notice from Lenderto Borrower requesting payment.

(Emphasis added.)

The Court'sDecision

The court granted the defendants' motions to dismiss the federalclaims and remanded the case to state court to consider thehomeowners' state law claims.

First, the court rejected the homeowners' claim that theforce-placement of flood insurance constituted a “settlementservice” under RESPA and that the defendants had violated RESPA byreceiving prohibited kickbacks and unearned fees in conjunctionwith the force-placed insurance. The court found that because theflood insurance was force-placed after the close of their mortgageagreement, the homeowners' claim had to be dismissed.

It also dismissed the homeowners' claim for statutory damagesunder Section 10 of RESPA, finding that Section 10 of RESPA did“not provide plaintiffs a private cause of action.”

Next, the court rejected the homeowners' claims under the FDCPA.The court ruled that Bank of America was not a debt collector underthe FDCPA because the loan was not in default at the time Bank ofAmerica began servicing the loan. It also noted that the mortgageagreement explicitly authorized force-placement of insurance ifrequired by the lender, at the borrowers' expense, and concludedthat even if, as the homeowners contended, the FEMA map incorrectlyplaced their property in a flood zone, Seterus had not used “false,deceptive or misleading representations” or “unfair orunconscionable means to collect a debt” when it represented that aFEMA map showed their property to be in a flood zone and that theNational Flood Insurance Act required them to purchase floodinsurance. The homeowners' disagreement with the flood zonedetermination did not provide them with a vehicle to allege aviolation of the FDCPA, the court ruled.

The court then found that its supplemental jurisdiction over thehomeowners' state law claims was inappropriate, and it remandedthose claims back to Alabama state court.

The case is Davis v. Bank of America, No.2:13–cv–231–WC (M.D.Ala. Oct. 17, 2013). Attorneys involvedinclude: Allen Gerald Woodard, Woodard Law Firm, Andalusia, AL, forPlaintiffs; Anna L. Craft, Jason Robert Bushby, Bradley Arant BoultCummings, LLP, Birmingham, AL, Austin E. James, RCO Legal, PC,Atlanta, GA, for Defendants.