Renois v. WVMF Funding, LLC

Background

Marianne Renois, as administrator, fiduciary, and beneficiary of and for the Estate of Ellis DeAngelo, together with Myrteen Lee and Tauna Thompson, brought a proposed class action against WVMF Funding, LLC and Compu-Link Corporation doing business as Celink. The complaint asserts several claims, but the pending motion concerned only Count Two, which alleges violations of New York Real Property Law section 280-b and related regulations.

The case involves a federally insured reverse mortgage obtained by Jean and Ellis DeAngelo. The loan documents required the borrower to maintain hazard insurance and allowed the lender to pay property charges, including insurance, if the borrower failed to do so. The plaintiffs alleged that Celink purchased two force-placed insurance policies even though Renois had maintained insurance and had notified Celink of that coverage. The premiums were added to the loan balance. The plaintiffs further alleged that the defendants later credited only the premiums, and did so after the fifteen-day period required by the plaintiffs’ legal theory, while not refunding or crediting related charges, interest, and mortgage-insurance premiums.

Motion and Legal Issues

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, to dismiss Count Two. They argued that section 280-b(4) did not apply because the insurance payments were not alleged to have come from mortgage proceeds; that the relevant law was not effective during the period at issue; and that neither defendant was an insurer, insurance producer, or affiliate covered by the refund regulation.

The plaintiffs argued that the defendants should not be allowed to raise defenses that they could have raised in an earlier motion to dismiss. The court rejected that argument, concluding that the defendants had not waived the failure-to-state-a-claim arguments and that considering them would not create improper or dilatory motion practice.

Ruling on the Notice Claim

The plaintiffs alleged that the defendants violated New York Real Property Law section 280-b(4)(b) by omitting required language from Renois’s March through June 2020 periodic loan statements. The defendants argued that the notice requirement applied only when payments came from the mortgage’s proceeds.

The court rejected that argument at the motion-to-dismiss stage. The loan documents stated that property-charge advances would be made from a line of credit to the extent possible. The court held that the plaintiffs plausibly alleged that the force-placed insurance premiums and related charges were paid through that line of credit and therefore were derived from mortgage proceeds. The motion to dismiss was denied as to Renois’s claim based on section 280-b(4)(b).

The plaintiffs also relied on a regulation requiring certain disclosures, 3 N.Y.C.R.R. section 79.11(a)(6). The court held that a transition provision made that regulation effective for the relevant conduct only after July 3, 2020. Because the alleged missing notices appeared in statements from March through June 2020, the claims based on that regulation failed to state a claim.

The court rejected the defendants’ broader argument that the transition provision delayed the effectiveness of all claims under section 280-b. It ruled that the transition provision applied to the Part 79 regulations, not generally to the statute itself.

Ruling on the Refund Claim

The plaintiffs alleged that the defendants violated section 280-b(3)(c) by failing to refund force-placed insurance premiums and related amounts within fifteen days after receiving notice that borrower-maintained insurance existed. They relied on 11 N.Y.C.R.R. section 227.5, which requires an insurer, insurance producer, or affiliate to remove force-placed insurance and provide a refund after receiving appropriate notice.

The court explained that the regulation defines an insurer as an authorized insurer, an insurance producer as a licensed insurance producer, and an affiliate as a company under common control with an insurer or insurance producer. The plaintiffs did not allege facts supporting a plausible inference that either defendant was a state-licensed insurer or insurance producer. The court rejected the plaintiffs’ argument that Celink could be treated as an insurance producer even though it was unlicensed. The claims based on section 227.5 therefore failed to state a claim.

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss Count Two. It dismissed with prejudice the parts of Count Two alleging violations of section 280-b(3)(c) based on alleged violations of 3 N.Y.C.R.R. section 79.11(a)(6) and 11 N.Y.C.R.R. section 227.5. Count Two survives in all other respects, including the claim based on the alleged failure to provide the notice required by section 280-b(4)(b). The court declined to give the plaintiffs another opportunity to amend the remaining deficient claims because they had already received multiple opportunities to amend. The case remains referred to Magistrate Judge Figueredo for general pretrial management.