Plaintiffs alleging discrimination in REO management get second chance

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A National Fair Housing Alliance-led group plans to amend and refile a recently dismissed complaint against Deutsche Bank, Ocwen Financial Corp. and Altisource Portfolio Solutions alleging racial discrimination in property preservation.

"We plan to continue with the litigation. The court invited an amended complaint, and we believe we can successfully satisfy the court's concerns," Morgan Williams, general counsel at the NFHA, said in an interview.

The court dismissed the complaint, but without prejudice, so plaintiffs can refile it, according to Judge Harry Leinenweber's memorandum opinion and order, which was filed in the U.S. District Court for the Northern District of Illinois' Eastern Division.

The Nov. 19 ruling upholds some assertions made by defendants in a motion to dismiss the complaint for its failure to state a claim.

Among other things, the judge found that plaintiffs "have failed to allege plausibly that defendants intentionally discriminated."

The judge's ruling also acknowledged that Ocwen's assertion that it "never actually conducted any property-maintenance activities within this court's jurisdiction."

"As we have stated previously, Ocwen cares about communities and is committed to maintaining the necessary quality control standards to consistently handle maintenance and marketing of bank-owned homes no matter where they are located in the U.S.," John Lovallo, a spokesperson for Ocwen, said in an email. "Given the facts in this case, we are pleased with the court's ruling on this matter."

The ruling additionally acknowledged that "Deutsche Bank defendants always acted as indenture trustees upon whom the responsibility for property maintenance never fell," which could be "a problem" when came to some of the allegations the plaintiffs made in the case.

"However, according to reasonable inferences taken in plaintiffs' favor, the Deutsche Bank defendants acted as 'back-up servicers' and thus were responsible for measure of property servicing," the judge added.

When the case is refiled, it needs to include the following amendments, according to the ruling: Ocwen needs to be replaced as a defendant with "an appropriate Ocwen subsidiary" and Deutsche Bank and Deutsche Bank AG need to be replaced as defendants with Deutsche Bank National Trust and Deutsche Bank Trust Co. Americas "in their trustee capacities only."

While in the past, vacant foreclosures ran rife in a way that strained capacity and led to neglect, they are on the decline today.

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REO Foreclosures Distressed Litigation RMBS Ocwen Financial Deutsche Bank