What is Force-placed Insurance or Lender-Placed Insurance? It’s Not Good for Florida Home Owners. Here’s Why.
Posted By Larry Tolchinsky on May 15, 2012
Where will all the strings of Foreclosure Fraud end? Who knows, because more and more issues just keep popping up from the huge mortgage fraud mess in Florida and across the country. The latest? Forced-placed insurance, also known as Lender-placed insurance, and the sneaky burdens it’s creating for American families and Florida home owners.
What is forced-placed insurance?
Forced-placed insurance is an insurance policy put in place to cover a home or condo by the mortgage lender or mortgage servicer when the mortgage payments fall behind schedule. They argue that this is necessary to protect their collateral, i.e., the home, from harm (fire, flood, whatever). That’s fair enough, someone needs to make sure that the property is protected by insurance – and the bank does have an interest in protecting the home with insurance if the homeowner’s own insurance policy isn’t available any longer.
Here’s the thing: they may take out the policy, but they look to the home owner who is behind on the mortgage payment to cover the cost of this new home insurance policy and the home owner’s not a part of the negotiations.
Surprising to almost no one in this current Foreclosure Fraud mess, these new forced-placed insurance policies are much more expensive than the standard homeowners’ insurance policy. These policy premiums are shockingly high, especially when compared to the same coverage offered under the standard homeowner’s coverage. They can be enough to force the homeowner into foreclosure.
Of course, banks and servicers point to the language of the mortgage and note paperwork the home owner signed long ago, in better times: that mortgage documentation usually had a tidy little provision within it that stated the borrower agreed that the lender could go get a force-placed insurance policy in some situations. Falling behind on the mortgage payments? Yes, that is usually listed in those handy contract provisions.
Banks and Insurance Companies in Cahoots.
Given the current Foreclosure Fraud greed stories, it shouldn’t be a big surprise to anyone that there are ties between the mortgage loan servicers and lenders and the insurance companies. Sometimes, one owns the other one. Sometimes, they get nice financial incentives to do the deal (which some are blatantly labeling as “kickbacks“).
Larry Tolchinsky’s Tip:
Right now, forced-place insurance is just getting attention from various state and federal powers that be, and steps are being taken to do something about this latest version of greedy, bad acts by banks in Florida and elsewhere. However, forced-place insurance or lender-placed insurance has not been stopped: it’s still happening to people everyday.
In fact, once again, don’t expect state or federal agencies to fix this problem. There was talk that the Consumer Financial Protection Agency would take care of the greedy forced-place insurance policies being purchased with distressed homeowner’s money all over the place.
Nope. The CFPA, created by the Dodd-Frank federal laws, regulates new financial services. However, hopes that the CFPA would solve the problem recently died; to learn more about what they did and didn’t do, check out this May 2012 article in the Huffington Post.
If you are behind in your mortgage payments, then first things first — don’t go it alone in this legal mess of ForeclosureFraud antics, get an experienced Florida real estate attorney on your side to help you through the legal jungle that exists today.
Additionally, consider this: if you get a notice that your standard homeowner’s insurance coverage is being cancelled or expiring, then be proactive and get yourself another policy. Do this, and you out maneuver the bank or mortgage servicer just waiting to issue that evil, expensive force-placed policy on your home.
If you have questions or comments, please feel free to Chat with Larry in the comments below, at email@example.com or (954) 458-8655.