Bank of America Faces Racketeering Charges (RICO)

One of the most powerful civil fraud statutes on the books is RICO – the Racketeer and Corrupt Organizations Act. Passed in 1970, the law was designed to pursue the Mafia. These days, the law can be used to prosecute many different types of wrongdoers, although most lawyers don’t understand the statute. Judges sometimes have problems understanding the law too. We know the author of a law review article who needed 1800 pages just to explain the law.

Despite an erratic history, RICO remains the more powerful civil recovery statute on the books. Once limited mostly to the mob, the law is now often used against Ponzi schemers, businesses and banks. A recent case against Bank of America may have widespread repercussions for both the bank and the law itself.

Plaintiff lawyers representing businesses and homeowners often assert a RICO claim in lawsuits against banks but those claims rarely stick. Even though those claims rarely stick, plaintiffs’ lawyers still love RICO. Why? Try treble damages and legal fees for starters.

In early 2015, several homeowners filed a RICO lawsuit against Bank of America claiming the bank referred borrowers to private mortgage insurance providers in exchange for kickbacks. They claim the kickbacks were funneled through a bank affiliate, Bank of America Reinsurance Corporation.

Immediately after the suit was filed, Bank of America sought to dismiss the claims. The bank said the homeowners had no claim and argued that they waited to long to file their suit.

In a ruling issued just before Christmas, a federal judge in Pittsburgh sided with the homeowners and refused to dismiss the RICO claim against the bank. To understand the ruling, some facts are necessary.

Homebuyers that can’t come up with a down payment of at least 20% towards their home usually have to obtain private mortgage insurance. Called PMI, the insurance protects lenders if the borrowers default. Once the homeowner builds sufficient equity, the PMI requirement is dropped.

PMI is required by the banks. In this case, the four homeowners claim that Bank of America steered them to particular providers. The four claim, however, that the insurers are really providing little in the way of insurance. Instead, they claim that much of their premium dollars were used to pay kickbacks to the bank. Of course, that meant that borrowers were paying too much for insurance.

“But for” the kickbacks, the premiums could be much lower.

All four homeowners purchased their homes in 2006 or 2007. Their lawsuit wasn’t filed until 2015. RICO has a 4-year statute of limitations meaning that claims must be filed within 4 years. Wait too long and the claims are void.

Relying on the 4-year statute, Bank of America first tried to have the claims tossed because the homeowners waited too long. The homeowners disagreed. They claim that the bank “knowingly and actively concealed” the fraud. Because they didn’t know about the kickback scheme, they couldn’t be expected to file suit. The homeowners say that the 4-year clock didn’t begin to run until they discovered the fraud.

At this point, the court has sided with the homeowners. That doesn’t mean they win but it does mean their case can go forward and that they can obtain discovery from the bank.

The bank’s standing defenses were also rejected. Bank of America claims that homeowners can’t sue the bank simply because they think they paid too much for PMI insurance. Here, however, the homeowners’ RICO claims are based not on the rates but on the illegal kickback scheme.

Insurance premiums are often regulated and approved by the state. Simply because a PMI provider’s rates were published doesn’t excuse illegal kickbacks.

The bank’s third and final defense was also rejected. RICO requires certain “predicate acts of racketeering.” Under the statute, these “acts” include wire fraud, mail fraud, money laundering and extortion. The acts must establish a pattern of racketeering activity. This means there must be more than one act.

Because the homeowners say they received deceptive letters and phone calls, the bank used the mail and wires (telephone wires) to further their scheme.

The case is far from over but by winning the motion to dismiss, the plaintiff’s claims remain alive. Now they are entitled to conduct discovery, can demand production of documents and compel witnesses to testify. This is clearly a win for the homeowners and loss for the bank.

Litigating claims against bank is difficult. Borrowers usually have limited funds. That so few lawyers have experience suing banks makes things even more difficult.

This case shows that banks can be held accountable. Had the bank acted alone, it wouldn’t be facing a RICO claim going into 2016. By claiming there was a conspiracy between the bank and PMI insurance companies, the homeowners have gained some important leverage over the bank.

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We are one of the groups of lawyers that concentrate in lender liability claims. In other words, we sue banks. Most lender liability lawyers either work for big firms (and therefore generally represent banks) or have limited residential foreclosure experience. Finding a lawyer willing to pursue a RICO claim against a big bank is difficult. We can help and have prosecuted cases throughout the United States.

If you believe you have a viable RICO claim or have other claims against a bank, lender or mortgage company, give us a call. All inquiries are kept strictly confidential. Need a second opinion on an existing case? We can help and often partner with other firms to bolster their efforts. 

For more information, contact attorney Chris Katers at (414) 777-0778. The author of this post, attorney Brian Mahany, can also be contacted at [hidden email] or by telephone at (414) 704-6731 (direct)

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