The latest suit is different in several ways from a flock of lawsuits in Florida, the FPI capital of the world, according to lawyers who are now dealing with class action lawsuits against 6 major mortgage services over FPI provided by insurers during the recent housing bust.

Moreover, industry lawyers, who have filed cases in California and Florida, as well as New York, acknowledged that the rulings in Florida and New York are consistent in that courts are now viewing FPI arrangements harshly, by rejecting various defense theories and giving plaintiff’s lawyers leverage over settlement talks.

Besides facing triple damages under RICO, the case will not face the same class certification problems as the multi-state cases based on state law. Specifically, a multi-state case based on state law, as are the Florida cases, are difficult to certify as class action because insurance laws are different in every state.

Mark A. Strauss, lead lawyer in the NYC case at Kirby McInerney LLP in New York, said, “We're very pleased with the court's well-reasoned opinion, and will be vigorously prosecuting the case on behalf of the borrowers victimized by this scheme. RICO is a powerful statute that provides for treble damages."

Force-placed insurance is purchased by a lender or servicer if the borrower allows the homeowners policy to lapse. Banks and insurance companies had been hoping to protect themselves from force-placed lawsuits based on what is known as the filed-rate doctrine, which prevents plaintiffs from claiming rates approved by regulators are not fair.

The lawsuit argues that GMAC and Balboa “devised and carried out a scheme to defraud borrowers and loan owners by overcharging them for FPI” by which Balboa and and other defendants paid GMAC secret rebates, “i.e., kickbacks, camouflaged through complex transactions using affiliates and related parties.”

The suit charges that GMAC “pockets the rebates for itself, while fraudulently billing borrowers based on the full purported price of the FPI. In other words, the rebates reduce GMACM’s FPI costs, but those savings are not passed through to borrowers," the suit said.

Because the amounts supposedly paid by GMAC for FPI constitute servicing advances, “loan owners bear the inflated charges through reduced loan proceeds and higher loss severities to the extent borrowers fail to pay,” the suit alleged.

Additionally, the suit alleges, the policies do not cover the personal property of the borrower or provide other coverage commonly associated with homeowners’ insurance. “Only the interests of GMAC are insured and protected,” the suit said.

The suit said the so-called “kickback scheme” was devised at the inception of the parties’ relationship in 2003, and has been carried out continuously to the present.

Reacting to the lawsuit, consumer advocate Birny Birnbaum, executive director of the Center for Economic Justice in Austin, said “The New York court got it exactly right in its ruling that the filed-rate doctrine does not protect the charges a mortgage servicer makes to a borrower, but only the premium charges from an insurer to the mortgage servicer.”

“We hope that the Consumer Financial Protection Bureau reviews this ruling and revises its mortgage servicing rule to better protect borrowers from paying for kickbacks from force-placed insurers to mortgage servicers,” he added.