4th Cir.: Kovachevich v. NMIC- Voluntary Cancellation of Private Mortgage Insurance

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Summary:

In Kovachevich v. NMIC, the Fourth Circuit tackled an important question under the federal Homeowners Protection Act (HPA): whether a borrower is entitled to a refund of prepaid private mortgage insurance (PMI) premiums when PMI is cancelled not under one of the Act’s statutory benchmarks, but through a voluntary agreement. The court affirmed dismissal of the borrower’s HPA claim, holding that only statutory cancellations under 12 U.S.C. § 4902(a)-(c) trigger a right to refund under § 4902(f). However, it vacated the district court’s wholesale dismissal of the borrower’s state-law claims for unjust enrichment and conversion, remanding for consideration of supplemental jurisdiction.

Kovachevich had prepaid PMI premiums as part of his 2020 mortgage, which was required due to his sub-20% down payment. In 2021, although he did not qualify for statutory cancellation under § 4902, his servicer agreed to a voluntary termination of PMI under § 4910(b). He then sought a pro-rated refund of the unearned premiums from NMIC, which was denied. Kovachevich sued under the HPA and state law. The district court dismissed the HPA claim, finding that voluntary cancellations did not qualify for the refund provision under § 4902(f), and dismissed the state-law claims for lack of jurisdiction.

The Fourth Circuit affirmed the district court on the core issue that   statutory refund rights are limited: The plain language of § 4902(f)(1) provides for refunds of “unearned premiums” only upon “termination or cancellation … under this section”—i.e., when triggered by the borrower meeting specific amortization benchmarks in § 4902(a)-(c).

§ 4902(f)(2) Tied to (f)(1): The second paragraph, which requires mortgage insurers to remit premiums to servicers for repayment, only applies “for repayment in accordance with paragraph (1).” Thus, if (f)(1) isn’t triggered, there is no duty to refund under (f)(2) either. Although § 4910(b) allows voluntary cancellations beyond the statutory scheme, it does not create a separate right to a refund.

The court  however took issue with the district court’s categorical dismissal of Kovachevich’s state-law claims for lack of jurisdiction. Since federal courts have discretion under 28 U.S.C. § 1367 to retain supplemental jurisdiction even after disposing of all federal claims, the panel remanded for the district court to exercise its discretion properly rather than treating jurisdiction as automatically lost.

Commentary:

Here  is a helpful table for statutory cancellation of PMI under the  Homeowners Protection Act:

The statutory definition of a "good payment history"   is found at 12 U.S.C. § 4901(4):

The term ‘good payment history’ means no payments 60 days past due in the 24 months preceding the cancellation request, and no payments 30 days past due in the 12 months preceding the cancellation request.

For consumer bankruptcy attorneys  this should allow the borrower to request termination of the PMI once they have made 24 consecutive payments under a confirmed plan and reached the 20% equity mark.

This could certainly be a nonstandard provision in a Chapter 13 plan:

Private Mortgage Insurance (PMI) Termination Pursuant to 12 U.S.C. § 4902(a):

The Debtor has or will satisfy the conditions for borrower-requested cancellation of private mortgage insurance (PMI) under the Homeowners Protection Act (12 U.S.C. § 4902(a)). The mortgage servicer shall, upon written request by the Debtor and proof of eligibility, cancel PMI and cease collecting PMI premiums no later than 45 days after the Debtor reaches an unpaid principal balance equal to or less than 80% of the original value of the mortgaged property, provided the Debtor:

(1) is current on payments pursuant to the confirmed plan at the time of the request;
(2) has a good payment history as defined in 12 U.S.C. § 4901(4) and as evidenced by having made 24 consecutive and on-time payments under the confirmed plan;
(3) certifies that the property value has not declined and has an unpaid principal balance of 80% of the original value of the home; and
(4) certifies that the property is not subject to subordinate liens.

Upon cancellation, any unearned PMI premiums, if applicable under federal or state law, shall be returned to the Debtor or applied to reduce the mortgage arrearage claim, as appropriate. The Chapter 13 Trustee shall adjust ongoing mortgage conduit payments and reduce the Chapter 13 plan payment accordingly once written confirmation of PMI cancellation is filed with the Court.

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To read a copy of the transcript, please see: