Class Action Suit Against Reverse Mortgage Lenders, Servicers Dismissed

A class action lawsuit filed in the Eastern District Court of New York in October of 2018 against reverse mortgage companies Live Well Financial, Reverse Mortgage Funding (RMF) and Compu-Link Corporation (Celink) has been dismissed indefinitely, though the plaintiff has the option to refile against one of the companies after its own legal woes have been settled. This is according to original reporting at Bloomberg Law and court documents obtained by RMD.

Both Celink and RMF have been dismissed from the case’s claims, and were the two only “viable defendants” due to the very public closure and ongoing bankruptcy proceeding in which Live Well is involved. If Live Well is able to emerge from its ongoing bankruptcy, the plaintiff may be able to continue pursuing relief against the company if a “plausible claim” against it can be made, according to court documents.

The lawsuit

The suit, which was pursued by lawyers associated with the AARP Foundation on behalf of a reverse mortgage borrower, alleged that Live Well and Celink maintained a practice improperly paying the property taxes of homeowners with Home Equity Conversion Mortgage (HECM) loans before those taxes are due, even though no contractual or other legal authority was present to do so, the suit alleged.

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Additionally, the suit alleged that notice was not provided to the homeowners before the companies would improperly demand that the homeowners repay these alleged tax advances under threat of foreclosure. If the homeowners failed to comply, the companies would then file for foreclosure on the loan, the suit contended.

The loan in question was originated by Live Well, serviced by Celink and subsequently sold to RMF in December of 2018 while Celink continued its role as servicer. The suit filed against the companies on behalf of the plaintiff did so on behalf of “all similarly situated” borrowers in a class action case.

RMF and Celink: no ‘plausible claims’ against companies

In separate orders based on findings and recommendations by Magistrate Judge Anne Y. Shields, the allegations made in the lawsuit against both RMF and Celink have been dismissed. The recommendation specifically related to the dismissal of RMF is due to the finding that “there are no allegations in the complaint that RMF is Live Well’s successor-in-interest,” according to the relevant court filing.

“Plaintiff specifically alleged RMF did not engage in any of the wrongdoing of which she complains,” the filing reads, before additionally specifying that the plaintiff has not alleged any specifically “actionable conduct” on the part of that company, or that RMF is a “damage defendant” based on the causes of action outlined in the initial complaint.

“[O]ne cannot amend a deficient complaint through motion papers” without specifying actionable conduct, the filing continues. That lack of actionable conduct in the complaint helps to facilitate RMF’s dismissal from the case, which was approved.

In the case of Celink, the Magistrate Judge dismissed the servicer’s involvement in the case on the basis that there appeared to be no plausible claims by the plaintiff in regards to accusations related to unjust enrichment on the part of Celink, and a claim that the servicer violated New York’s general business law — which prohibits deceptive practices — was dismissed since no deception was alleged.

According to the loan agreement, the lender had the right to pay associated property taxes if doing so protected the lender’s interest in the property. Subsequently, Celink was also dismissed from the case.

Representatives from RMF and Celink declined to comment on the case’s outcome.

Live Well’s unique situation

The situation as it pertains to embattled former lender and servicer Live Well Financial is a bit more complex due to its own ongoing legal woes related to its unexpected May 2019 closure, and active civil and criminal cases against former executives including its former CEO.

The filing details that based on documents, Live Well attempted to notify the borrower on three separate occasions between September 2014 and June 2015 that unless repairs on the relevant property were completed, the loan would be in default and would proceed to foreclosure.

Live Well received pre-approval from the Department of Housing and Urban Development (HUD) to commence a repair foreclosure that October, in which it also specified that among the actions it could take to protect its interest in the property, paying property taxes was among them according to court filings.

While this current matter is effectively closed based on the published decision, the option for the plaintiff to refile a case against Live Well can proceed in the future, though only under specific circumstances.

“[B]ased upon the presumption that Defendants Celink and RMF would be dismissed from this action, thereby leaving only Defendant Live Well, a bankrupt entity, Magistrate Judge Shields conditionally ‘recommend[ed] that this matter be closed at this time without prejudice to re-opening if Live Well emerges from bankruptcy and, at that time, Plaintiff can make a plausible claim against that Defendant,’” the relevant court filing reads.

Live Well’s recent history

Live Well’s ongoing bankruptcy case began in June 2019, one month after it was learned that the company had halted funding for new loans. Shortly afterward, three of the company’s former creditors sought to use the court system to force the remains of the company into involuntary bankruptcy, using apparent investigations being made by regulators and federal law enforcement as reasoning for seeking the court-supervised liquidation under Chapter 7 of the bankruptcy code.

The court ordered Live Well into Chapter 7 bankruptcy in July, 2019. The investigations by federal authorities ultimately culminated in the arrest of Live Well’s former CEO by the Federal Bureau of Investigation (FBI), with the originally scheduled October, 2020 trial now having been delayed to April, 2021 due to the COVID-19 coronavirus pandemic.

These cases are proceeding separately from the bankruptcy litigation. The former CEO, Michael Hild, entered a “not guilty” plea shortly after his arrest. At the beginning of the year, Hild dismissed his legal defense team in favor of hiring an attorney who is a longtime acquaintance and former classmate to represent him at the upcoming trial.

Read the story at Bloomberg Law (subscription required).

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  • “The suit… alleged that Live Well and Celink maintained a practice improperly paying the property taxes of homeowners with Home Equity Conversion Mortgage (HECM) loans before those taxes are due”

    I’ve looked at hundreds of delinquent & defaulted property tax cases, talked to many of the borrowers when they went into due and payable or foreclosure and worked with the servicers on a repayment plans.

    Never have I seen taxes paid early (at least on legacy RMs), and if they were, it would be a benefit to the borrower. Late fees, penalties, and interest imposed by the tax collector usually add hundreds of dollars to the tax bill. If it goes into foreclosure add a couple thousand more to the tab.

    In the repayment plans I’ve assisted with, the servicer has never charged any interest or fees even though the plan may stretch out over several years.

    Tax default is often confusing to the borrower. In California the tax year starts Jan 1, the fiscal year ends June 30th and unpaid prior year taxes become defaulted on July 1. First payment of current year taxes are due in Nov and second half in Feb of the following year. Any money sent to the tax collector is applied to the most recent bill leaving the defaulted one unpaid. Got that?

    It gets messier when the mortgage company sends payment and the tax collector tells the borrower that nothing is owed.

    The letters sent by the servicers are fairly clear (at least to me), to someone in their 80’s-90’s with limited capacity, not so much. They tend to get thrown in a pile which is probably the case with the borrower in this lawsuit

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