Bank files class action against company over allegedly illegal collection practices

Article Courtesy of The Legal

By Jessica Karmasek

Published December 30, 2015


TAMPA - A full-service bank has filed a class action lawsuit against a specialty financing company that buys delinquent receivable accounts from condominium and homeowners associations, alleging the company’s practices are illegal.

Plaintiff Wilmington Savings Fund Society, FSB, as trustee of the Primestar-H Fund 1 Trust, sued Business Law Group PA, or BLG; LM Funding LLC, or LMF; and Bruce Rodgers, who is set to become chairman of the board and CEO of LM Funding America Inc. and will remain a substantial stock owner after the company goes public.

Wilmington Savings filed its class action in a Florida circuit court Oct. 28.

The bank, which does business in Hillsborough County and in the state of Florida, purchases notes and mortgages securing residential properties in the state. According to the bank’s lawsuit, it then improves and sells the residential properties.

“Plaintiff is in the business of purchasing distressed assets, which include the notes and mortgages on properties either in default or currently in foreclosure,” the lawsuit states. “Plaintiff then receives an assignment of the note and mortgage and prosecutes the foreclosure action.”

LMF, which is based in Hillsborough County along with the other defendants, buys delinquent receivable accounts from condominium and homeowners associations.

A delinquent account occurs when an owner within an association fails to pay the monthly assessments required for membership. In exchange for funding each of its association clients, LMF receives an assignment of the delinquent receivable, which includes rights to collect the receivable and which is secured by a super priority lien against the unit or parcel.

According to Wilmington Savings’ complaint, LMF earns most of its revenue by collecting or recovering the interest, late charges and fees on the outstanding assessments, rather than the outstanding assessments themselves.

In Florida, condominium and homeowners associations are governed by state statutes, which grant particular protections to first mortgagees and their successors and assignees who obtain a judgment of foreclosure against an association member who defaulted on his or her mortgage and assessments.

Specifically, even though an association’s lien is generally superior to a first mortgage, state statutes limit a first mortgagee’s or its successors’ or assignees’ liability to an association to an amount known as the “safe harbor.”

“Despite their knowledge of the ‘safe harbor’ limitation, Defendants, as a matter of course and consistent with their business model, demand sums in excess of the ‘safe harbor’ from first mortgagees and their successors and assignees,” Wilmington Savings alleges in its 24-page complaint.

The defendants’ practice essentially holds first mortgagees and their successors and assignees “hostage” because they cannot obtain clear title and dispose of a property until they satisfy the association’s lien, the bank contends.

“Defendants’ practice is ‘illegal’ and results in Defendants being ‘unjustly enriched’ at the expense of first mortgagees and their successors and assignees,” Wilmington Savings alleges.

The proposed class is defined as follows:

“All first mortgagees and their successors or assignees who joined an LMF Association client in a foreclosure action in Florida, obtained title to the property at issue through a foreclosure judgment or deed in lieu of foreclosure, and to whom BLG, on behalf an LMF Association client, provided an estoppel certificate claiming entitlement to more than the limit” provided by two sections of Florida statutes, on or after Oct. 28, 2011.

Wilmington Savings, in its complaint, says the exact number of class members is unknown at this time; however, there are “likely hundreds or perhaps thousands” that fit the proposed definition of the class.

The proposed class seeks to enjoin the defendants’ practice and recover damages sustained as a result.

Kenneth G. Turkel and Brad F. Barrios of Bajo Cuva Cohen Turkel in Tampa and J. Daniel Clark of Clark & Martino PA, also in Tampa, are representing Wilmington Savings.

Earlier this month, the defendants filed a notice of removal in the U.S. District Court for the Middle District of Florida, Tampa Division.

In their seven-page notice, filed Dec. 10, they argue the federal court is the more appropriate venue because: 1) the number of members of the proposed plaintiff class is more than 100; 2) at least one member of the proposed plaintiff class is a citizen of a state different from at least one of the defendants; and 3) the matter in controversy exceeds the sum or value of $5 million, exclusive of interest and costs.

Tampa-area law firm Trenam Kemker Scharf Barkin Frye O’Neill & Mullis PA is representing the defendants.