Class action alleges home loan servicer Seterus refused to terminate PMI on modified loans, violating laws, loan terms

By Dan Churney | Oct 26, 2015

A Romeoville man is in U.S. District Court for Northern Illinois, alleging a home loan servicing company is sticking him and other troubled borrowers with unneeded mortgage insurance because the company gets a cut of the premiums.

Patrick Ciolino filed suit Oct. 19 against Seterus Inc., formerly known as IBM Lender Business Process Services, Inc., alleging Seterus violated the U.S. Homeowners Protection Act and the Illinois Consumer Fraud Act, and breached contract with him. Ciolino is seeking class action status for his suit.

IBM Lender Business Process Services renamed itself Seterus in July 2011. Seterus does business in Illinois and is incorporated in Delaware, with its main office in Beaverton, Ore. The company offers mortgage options to distressed borrowers.

Ciolino said he took out a $226,800 mortgage in 2007 with Marquette Bank. One of the terms to which Ciolino agreed, was to pay for private mortgage insurance until the principal balance decreased to $201,600, which would represent 78 percent of his home's appraised value. The 78 percent mark is set by the Homeowners Protection Act.

However, Ciolino inked a modification agreement with Seterus on Feb. 19, 2011 that raised the principal balance from $219,064 to $220, 091. As part of the modification, Ciolino asserted the parties would adhere to the original loan agreement that provided Ciolino’s mortgage insurance would end when his balance reached 78 percent of his home’s value – under the new arrangement, that would have occurred on May 1, 2012, presuming Ciolino kept up his loan payments.

Ciolino said he maintained his payments and reached the 78 percent mark, but Seterus never notified him of his rights to automatic termination and of the new termination date, as required by federal law. Further, being Seterus refrained from ending the insurance, Ciolino said Seterus was required to inform him of the grounds underlying the decision not to terminate the insurance, but Seterus allegedly did not do that either.

When Ciolino contacted Seterus to inquire about ending his insurance, Seterus replied by letter in August 2015, telling him he must wait until the “estimated midpoint” of his loan for termination to occur or pay a $350 appraisal fee and apply for termination. Ciolino pointed out termination was to be automatic and he should not be required to “apply” for it.

As of September 2015, Ciolino said his balance was $180,683 – a level well below the balance needed for termination. In Ciolino’s view, Seterus should have ended his insurance requirement, because both the law and his contract with Seterus demanded such action.

Ciolino said he has had to continue unnecessarily paying the insurance to avoid default. Worsening the situation, Ciolino said he is trying to refinance his loan through the federal Home Affordable Refinance Program, but under the program’s rules, if he has insurance on his current loan, he must have insurance on the refinanced loan, which will needlessly cost him money for several more years.

Ciolino claimed Seterus’ conduct showed a “reckless indifference” to his rights.

Ciolino said he understands it is Seterus’ “standard practice” to improperly require insurance on all modified loans it services, because the company has a “financial interest” in mortgage insurance, as it allegedly receives a portion of premiums.

Ciolino seeks statutory, compensatory, punitive and actual damages, as well as reimbursement for the costs of litigation.

Ciolino's suit against Seterus is the 15th suit filed in Chicago federal court since September 2011 naming Seterus as a defendant.

The Chicago firm of Edelman, Combs, Latturner & Goodwin is representing Ciolino. In lodging the suit for Ciolino, the firm filed notice it will claim a lien for one-third of any recovery awarded in the case.

EDITOR'S NOTE: An earlier version of this story incorrectly stated the plaintiffs in this case had fallen into default. That statement has been removed, as the plaintiffs had in fact remained current on their loan payments. We regret the error.

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Organizations in this Story

Edelman, Combs, Latturner & Goodwin, LLC Seterus Inc.

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