A federal judge has declined to dismiss claims brought by two Mississippi homeowners who allege they were steered into a fraudulent mortgage and left without adequate insurance coverage after a severe storm damaged their home.
In an order issued March 20, Judge Henry T. Wingate of the US District Court for the Southern District of Mississippi denied motions to dismiss filed by PennyMac Loan Services, LLC and Caliber Home Loans, Inc. The ruling allows plaintiffs Ashley C. Guerdan and Catherine E. Guerdan to proceed with their lawsuit, which includes claims of fraud, negligent misrepresentation, breach of contract, and bad faith.
According to the complaint, the plaintiffs purchased a home in May 2018 after being pressured to finance through Community Bank of Mississippi (CBM) rather than their original lender of choice. They allege CBM loan officer Jason Sykes told them he would “take care of everything” related to the insurance policy, leading them to believe the property would be fully insured, including for wind damage.
The insurance policy, arranged by insurance agent Michael Bishop through CBM, did not include wind coverage. When a storm in April 2020 caused a tree to fall on the home, the insurer, State Auto/Meridian, denied the claim based on that exclusion.
The Guerdans allege they were unaware of the wind exclusion and continued to pay insurance premiums through escrow, believing they had full coverage. They further claim that Caliber, which serviced the mortgage beginning in June 2018, and PennyMac, which assumed servicing in July 2019, failed to alert them to the coverage deficiency. They also assert that PennyMac force-placed excessive insurance coverage after the home became uninhabitable, significantly increasing their monthly mortgage payments.
PennyMac moved to dismiss the claims, arguing the plaintiffs failed to state a viable legal theory. Caliber claimed it played no role in the original insurance procurement and had limited involvement as a servicer. But Judge Wingate held that the plaintiffs plausibly alleged violations of Mississippi Code Ann. § 81-18-55(1)(c), negligence per se, and breaches of the duty of good faith and fair dealing.
Citing Mississippi case law, including Am. Bankers’ Ins. Co. v. Wells and Griffin v. HSBC Mortg. Servs., Inc., the court found that servicers can be held liable for mismanaging escrow accounts or failing to notify borrowers of insurance inadequacies. The court emphasized that the plaintiffs’ factual claims required further examination in discovery.
The plaintiffs originally filed suit in state court, but the case was removed to federal court by PennyMac. A motion to remand remains pending.
Judge Wingate’s ruling underscores potential liability for mortgage servicers that fail to manage insurance obligations with due diligence and transparency, particularly when those failures expose borrowers to denied claims and financial harm.
