When Kenisha and Greg Brantly bought their home, they obtained a 100 percent no-down-payment home loan from SouthStar Funding LLC. However, SouthStar required the Brantlys to obtain private mortgage insurance (PMI) to minimize the lender’s risk.

The lender arranged PMI from Republic Mortgage Insurance Co. The Brantlys pay a monthly PMI premium of $590 for this insurance. In a lawsuit, they contend Republic did not give them the lowest PMI rate and never informed them their premium was increased based on information in their credit reports.

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The Brantlys further allege Republic Mortgage Insurance never advised them of the credit report and the Fair Credit Report Act (FCRA), which allows them to obtain a copy of that report to dispute entries. Because the borrowers never received an “adverse action notice,” as required by FCRA, they contend Republic willfully or negligently violated the FCRA.

Republic Mortgage Insurance replied this lawsuit should be referred to binding arbitration as provided in the SouthStar home mortgage. But the borrowers resisted arbitration, arguing the arbitration clause in the mortgage does not apply to the separate PMI. Republic argued that the mortgage and the PMI are so intertwined that arbitration should apply to both.

If you were the judge, would you rule Republic Mortgage Insurance is entitled to binding arbitration of this dispute?

The judge said no!

“The lawsuit in the current case deals with Republic Mortgage’s insurance premiums, and an allegation that these premiums were increased due to information contained in the plaintiff’s credit histories. This claim is a statutory remedy under the Fair Credit Reporting Act and is wholly separate from any action or remedy for breach of the underlying mortgage contract that is governed by the arbitration agreement,” the judge emphasized.

This mortgage is not in default, nor is there any dispute between the borrowers and the lender, the judge explained.

“Although the mortgage insurance relates to the mortgage debt, the premiums of the mortgage insurance are separate and wholly independent from the mortgage agreement,” he continued. “The plaintiffs’ claims against Republic Mortgage do not implicate SouthStar in any wrongdoing,”

Therefore, the two agreements are not intertwined and Republic is not entitled to binding arbitration of this dispute, he ruled. The case shall proceed to trial, the judge concluded.

Based on the 2005 U.S. Court of Appeals decision in Brantley v. Republic Mortgage Insurance Co., 424 Fed.3d 392.

(For more information on Bob Bruss publications, visit his
Real Estate Center

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