A federal class action lawsuit was filed recently against a number of mortgage companies and other lending institutions in the Eastern District of Louisiana. The Law Offices of Joseph M. Bruno, et al. v. ABN Amro Mortgage Group, Inc., et al., Case No. 08-2762 (E.D.La. May 1, 2008). (Click here to read the Complaint.) The proposed plaintiff class consists of homeowners’ who retained attorneys to pursue claims against their homeowner’s insurance companies for damages arising from Hurricane Katrina, whose property is security for a mortgage, and who have closed on or are eligible to receive grants from the Louisiana Road Home Program (“Road Home”). The proposed plaintiff class would also include those attorneys who represented these homeowners and have not yet been paid for their services. The class action arises out of disputes between various parties as to the order of their various alleged interests in the loss settlement proceeds obtained from the homeowners’ insurance carriers.
First, many of the homeowners whose property sustained damage during Katrina had mortgages on their homes that were secured by the property pursuant to mortgage contracts designating the mortgagee as an additional loss payee under the homeowner’’ insurance policy. Therefore, the mortgage lenders claim they are contractually entitled to all insurance proceeds received by the homeowners.
Second, homeowners were eligible to apply for grant money from Road Home to assist in the rebuilding of their property. Road Home is funded by the U.S. Department of Housing and Urban Development, and offers grants to homeowners to compensate for uninsured hurricane damages. Road Home also claims an interest in the loss payments pursuant to federal law.
Finally, the homeowners’ attorneys often operated under contingency fee contracts which entitled them to payment for their services based on a percentage of the insurance recovery paid over and above the insurer’s initial payment offer. Although Road Home acknowledges responsibility for the payment of these attorneys’ fees, the mortgage lenders do not.
The plaintiffs seek a declaration by the Court as to whether Road Home is entitled to the insurance proceeds up to the amount of the Road Home grant, and if so, whether that entitlement trumps the mortgage companies’ claims to the funds. The plaintiffs further seek a declaration that neither federal law nor the mortgage contracts abridge plaintiffs’ right to attorneys’ fees, which they claim is a property right that is first and superior to all other liens.