Lenders One and Plaza Home Mortgage spar in contract lawsuit

Lenders One is suing Plaza Home Mortgage for hundreds of thousands of dollars, a claim Plaza says is motivated by the mortgage cooperative parent Altisource Portfolio Solution's financial struggles. 

The lawsuit seeks continuing damages of at least $415,611 for Plaza's failure to pay monthly mortgage production marketing fees for loans the correspondent player buys from Lenders One members. PHM allegedly began refusing to pay invoices last October, and this January stopped providing Lenders One with monthly purchase reports. 

The fee is a basis point cut of the total unpaid principal balance of all loans PHM purchased from Lenders One members per month. According to an amended, three-year agreement included in the lawsuit, PHM had to pay 6 basis points in the first year, 3 basis points in the second year and 2 basis points in the third year. It excludes non-delegated loans from PHM's wholesale division.

The complaint was filed in July in a New York federal court, under the plaintiff's Best Partners Mortgage Cooperative name. Plaza has responded by invoking its own lawsuit against Lenders One affiliates, including Altisource, over an abruptly canceled loan repurchase insurance policy.

"The reasonable inference is that Altisource's conduct has been orchestrated among its subsidiaries to maximize revenue during this period of financial distress," an attorney for Plaza wrote. 

The California lender names Altisource's Association of Certified Mortgage Originators Risk Retention Group and Castleline Risk and Insurance Services as defendants. Its lawsuit, also filed in New York, did not specify damages PHM is seeking. 

An attorney for PHM declined to comment this week. An attorney for Lenders One and representatives for the companies involved did not respond to requests for comment. 

PHM said it's used its loan repurchase policy with RRG, on behalf of CastleLine, since 2016 and has received coverage for approximately 63 loans. As repurchase demands came in, PHM discussed them on biweekly calls with Castleline, according to court filings. 

The policy has a limit of liability of 25% of the original principal balance of a repurchase loan, up to a maximum of $125,000. Each claim also has a self-insured retention of 15% for scratch-and-dent loss. In all, the policy has a $6 million aggregate limit of liability. 

At issue in Plaza's lawsuit are 21 claims for defective loans since 2020. Castleline last October allegedly told PHM existing and future claims were denied because the claims handling process violated conditions of the policy. An attorney for PHM criticized the abrupt cancellation, given the parties had followed the protocol for several years prior. 

"Upon information and belief, CastleLine is in financial distress, and the desire to retain funds rather than agreeing to provide coverage on behalf of its affiliate, the RRG, may have motivated its and Altisource's change of position from providing coverage," the complaint wrote. 

Altisource in recent third quarter earnings reported a $9.3 million net loss, an improvement from the $11.3 million loss it posted in the year ago period. Over the summer, the company generated $38.1 million in revenue, slightly up from the third quarter last year. 

Lenders One earlier this year said it has over 250 member companies that originated around $372 billion in loan volume last year. Plaza recorded over $3.7 billion in loan origination volume in 2023, according to Home Mortgage Disclosure Act records. 

Both lawsuits remain pending. The lenders are arguing a discovery request in the Lenders One breach of contract suit, and a telephone hearing is scheduled in February.