Bloomberg News

ResCap Affiliate, GMAC Mortgage, Sued by Mortgage Trustee

November 09, 2012

GMAC Mortgage LLC, an affiliate of bankrupt Residential Capital LLC, withheld monthly loan payments due to investors and charged excessive rates for insurance, a trustee for mortgage holders claimed in a lawsuit.

In a suit filed in U.S. Bankruptcy Court in Manhattan, American Residential Equities LLC accused GMAC of failing to properly service pools of mortgage loans bought by investors and of driving up the price of insurance on mortgaged properties in order to collect “kickbacks.”

“GMAC has unjustly enriched itself at the expense of ARE, and should be required to disgorge those wrongful gains,” American Residential said in its complaint.

ResCap, GMAC and their affiliated companies filed bankruptcy in May with plans to sell ResCap’s servicing business, the fifth-biggest in the U.S. ResCap is a unit of Ally, a Detroit-based auto lender that is majority-owned by U.S. taxpayers. Ocwen Financial Corp. (OCN:US) and Walter Investment Management Corp. (WAC:US) won an auction for the unit last month with a bid worth about $3 billion.

Susan Fitzpatrick, ResCap’s communications director, declined to comment, saying the company hadn’t yet seen the lawsuit.

American Residential is the trustee for investors who bought pools of non-performing mortgages and hired GMAC to service the loans, including trying to collect monthly payments from borrowers and foreclosing when necessary.

Excessive Rates

American Residential claimed that GMAC conspired with Balboa Insurance Co. to charge excessive rates for so-called forced-place insurance, which is placed on properties when a borrower fails to pay insurance. In return for placing the insurance with Balboa, GMAC received a kickback, according to the complaint.

Deanna Lewis, a spokeswoman for Balboa, said the company couldn’t immediately comment because it hadn’t seen the lawsuit.

American Residential is seeking an unspecified amount of damages.

The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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Companies Mentioned

  • OCN
    (Ocwen Financial Corp)
    • $28.04 USD
    • -0.87
    • -3.1%
  • WAC
    (Walter Investment Management Corp)
    • $23.59 USD
    • -0.82
    • -3.48%
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