U.S. Bancorp Mortgage Co. joined the ranks of mortgage servicers paying up for allegedly over-escrowing mortgage loans after agreeing to settle a class-action dispute out of court by reimbursing mortgagors.
The case, Tyrone Howard and Rosie M. Howard vs. U.S. Bancorp Mortgage Corp., No. 91 C 4951, was filed in the U.S. District Court for the Northern District of Illinois. Federal Judge James B. Zagel tentatively approved the settlement March 14.
USBMC is one of 80 over-escrowing defendants in cases tied to alleged violations of the Real Estate Settlement Procedures Act pending in about 12 states. Many of the cases have been assigned to the judicial panel on multidistrict litigation and transferred to the Northern District of Illinois.
While the Respa-related decisions have a tendency to swing toward consumers, that hasn't always been the case. The U.S. District Court of the Eastern district of Louisiana dismissed a similar complaint on April 12 filed by the state attorney general on the grounds there is no private right of action to enforce the HUD provision that limits escrow accounts.
But that decision appears to be the exception, rather than the rule, as the number of settlements in over-escrowing cases has grown, including some high-profile, large-servicer cases, such as BancBoston Mortgage Corp., which settled in Alabama in January. Other settlements are also pending.
The suit alleged that USBMC,a Portland, Ore., subsidiary of U.S. Bancorp, required borrowers of loans it serviced to overpay into escrow accounts for realty taxes, insurance, et cetera. Attorneys for the class held that USBMC's practice of calculation and accumulation of the escrow payment - the aggregate accounting method - are a breach of the mortgage contracts, constitute fraud and violate the federal Racketeer Influenced and Corrupt Organizations Act.
Under the settlement, USBMC has agreed to pay eligible mortgagors a single rebate equal to 3% or any interest rate required under state law, multiplied by the amount of the escrow surplus at the time of the last USBMC escrow analysis. The rebate applies to any escrow surplus not refunded to the mortgagor within 60 days after the effective payment change date of the last USBMC escrow analysis.
USBMC denied violating any law, regulation or rule, in the settlement, and added that it had agreed to the terms of the settlement to avoid costs and business disruption from further litigation. A hearing to determine the fairness of the settlement has been scheduled for July 18 at the U.S. District Court in Chicago.
