Force-Placed Insurance

Force-Placed Insurance
A common practice among banks and mortgage companies is forcing a borrower to pay for a homeowners’ insurance policy to protect the bank’s interest in the home, usually by purchasing the insurance without the homeowners’ knowledge or consent. Though the banks and mortgage companies typically rely on language in a loan agreement that permits them to require that a borrower maintain a homeowners’ insurance policy, that doesn’t mean the banks and mortgage companies are acting properly. Instead, recent litigation against the banks and mortgage companies revealed that they have been forcing borrowers to pay for very expensive homeowner insurance policies that were purchased from an insurance company owned by the banks, and sometimes the insurance policies are even back-dated. These practices have cost American homeowners millions of dollars in inflated insurance policy payments. And it’s time we fixed that.

Sound complicated? Basically put -are you paying a higher cost for home insurance than before, and did you choose this new insurance? (Hint: check your statements and see if something looks off.)

If one of the following banks or mortgage companies has forced you to pay for a homeowners’ insurance policy (— also known as creditor-placed, lender-placed or collateral protection insurance), you may be able to file a lawsuit with Baron & Budd to help recover the money you have lost:

  • Ally Bank
  • Fifth-Third Bank
  • M&T Bank
  • Quicken Loans
  • Regions Bank
Please contact our force-placed insurance lawyers at 866-723-1890 or complete our contact form to see if you are eligible to file a lawsuit with Baron & Budd. In the meantime, you should also continue to make payments to cover your force-placed insurance, even if you believe the servicer is at fault.

Force-placed insurance is meant to help ensure that the property remains insured, thereby protecting the homeowner (i.e., the borrower) and the lien holder (i.e., the insurer). Well, that’s the theory of it, anyway.

Here is the reality: according to an investigation performed in 2011, force-placed insurance premiums charged to homeowners are two to ten times higher than premiums for voluntary insurance. And despite the higher cost to homeowners, the coverage involved with force-placed insurance is significantly limited compared to voluntary insurance and often goes so far as to cover different risks than a typical homeowner’s policy.

For instance: a force-placed insurance policy may not cover lost possessions or hazard coverage for the borrower’s personal property, owner liability coverage for damage or injury to others or coverage for the cost of staying in a rental home when one’s house is being repaired.

With force-placed insurance, what you pay for is not what you get.

Lenders have made a business, not of protecting your homes, but of lining their pocketbooks any way that they can. And up to this point, they’ve found numerous ways.

To start, insurers and banks have worked together to build a monopoly — literally building a network of financial arrangements and partnerships that have driven the cost of premium rates exorbitantly high. Instead of force-placed insurers competing for business from banks and mortgage servicers by offering lower prices (as the practice should work in theory), they have made incentives for banks and mortgage companies to buy force-placed insurance with higher premiums. They do that via the partnerships they have created — partnerships that enable banks and mortgage servicers through complex arrangements to share in the profits associated with the higher prices.

That’s right: banks, mortgage companies and loan servicers often receive a commission from the sale of a new insurance policy and when a force-placed policy is bought for the homeowner, it is often bought from an insurance company that they own themselves. Banks call this a “commission” but it’s really a kickback (—something that you’d be hard-pressed to get away with in even the childhood game of Monopoly!)

Thankfully, this practice of kickbacks is starting to lessen because of increased regulations. However, because of the practice, very few homeowners are lucky enough to receive a grace period if they miss a property-insurance payment. And that’s because banks have no incentive… they’d rather install the force-placed insurance. Likewise, the “reverse competition” that occurs with force-placed insurance is not going anywhere. Commissions or no commissions, force-placed insurance means the lender chooses the coverage provider and the amount — and the consumer has to pay for it. That means premium prices are driven up for homeowners because the lender has zero motivation to select the lowest price for coverage, because they are not picking up the tab.

Commissions or no commissions, games or no games, it’s important to understand that with force-placed insurance we’re not just talking about a few extra dollars thrown in here or there in your monthly payment plan — we’re talking a serious burden to countless American homeowners, some of whom have been forced into foreclosure.

Put simply: force-placed insurance is an insurance policy that is instated by a lender, bank or loan servicer on a home when the property owner’s insurance has either cancelled or lapsed in payment. Force-placed insurance may also occur in cases where a homeowner’s policy is deemed insufficient and yet the homeowner failed to secure a replacement policy. For instance: take a homeowner in a flood zone with an insufficient hazard flood policy; that homeowner is expected to secure a replacement hazard policy to cover the risk of flooding — if they do not, than force-placed insurance may be instated to cover the risk of flooding. Other hazard policies may include hail, wind or tornado.

Again, this all may sound good in theory. But it’s when we take it into the real world of big banks and even bigger insurance companies that things start to go wrong.

Much of the problem can be traced back to why force-placed insurance plans exist in the first place: to ensure the lenders’ financial interest in the property. It’s that simple. Lenders do not want to lose you as a client and they especially do not want to lose their stake in eating into your bank account.

What that means is that the cancellations, lapses in payments or failures to secure replacement policies (i.e., the measures that need to occur in order for force-placed insurance to be instated) are often all too muddled. Meaning: if a homeowner accidentally forgets to make a payment or buys an insurance policy that the mortgage company, bank or loan servicer deems “insufficient,” then force-placed insurance can swoop in to save the day for the loan servicer and cost the homeowners hundreds to thousands of dollars in return.

All mortgages require borrowers to maintain adequate homeowners insurance on their property.

When a homeowner does not pay their insurance premiums, even if by accident, or does not secure the hazard insurance policies that they may need for their area, then the mortgage company, bank or loan servicer holding the note has the right to purchase insurance on the homeowner’s behalf. The mortgage company, bank or loan servicer may then charge the homeowner for the new insurance premiums without any consultation regarding the costs of coverage. Insurance companies also charge homeowners for backdated policies.

A loan servicer may put force-placed insurance on a homeowner’s property in the following instances:

  • The homeowner does not have a homeowner’s policy because they did not purchase a policy.
  • The homeowner does not have a homeowner’s policy because the policy was cancelled after the renewal premium was not paid.
  • The lender did not receive proof of insurance coverage (this can happen, by the way, even when the homeowner has coverage in place).
  • The amount of coverage, the type of coverage or the deductible in the homeowner’s insurance policy does not meet the lender’s requirements.

If you look at your mortgage, you can probably find a provision that says that if you stop paying for your property insurance, then the bank can buy property insurance for you.

What that little provision does not explain is just how much more expensive force-placed insurance policies are. And if the borrower does not pay that inflated force-placed insurance policy premium, they could ruin their credit and be at risk of foreclosure.

Ask a bank about force-placed insurance and they’d be quick to re-word the term to “lender-placed” insurance. It’s not forced, so say the banks, instead, it’s something lenders do to help homeowners. What’s more, so say the banks, homeowners are given repeated notice to maintain their insurance on their property. That’s the bank’s side.

Yet here is what we are hearing from those who have been affected:

  • Some homeowners are being put on force-placed insurance when their coverage lapses because of the insurer’s error, not their own.
  • Some homeowners find that their force-placed insurance has duplicate policies in place — i.e., more than one policy for flood or hurricane protection.
  • Some homeowners find that their force-placed insurance is charging them retroactive flood or hurricane (for instance) protection for over a year, even when there had been no significant floods or hurricanes in their area.

In 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act is the largest financial regulation overhaul since the 1930s and it was written with the intention to prevent another financial crisis from occurring. In the Dodd-Frank Act, there are specific provisions that require force-placed insurance to be “bona fide and reasonable” (— yes, that’s not very specific).

The provisions also say that loan servicers have to send notice to homeowners before they force-place their insurance. This notice must tell the homeowner that they are required to maintain hazard insurance and that the homeowner does not have proof of insurance coverage. In addition, the notice is supposed to tell the homeowner the procedure for providing evidence of their existing coverage and that, should the borrower not prove their coverage, the servicer may force-place their insurance.

The loan servicer is then supposed to send a second notice to the homeowner at least 30 days after sending the first notice. Then, 15 days after the second notice has been sent, the servicer can force-place the insurance coverage if the homeowner has not provided proof of their insurance coverage.

However, there are plenty of opportunities for things to go wrong between the first and second notice, and even homeowners who have submitted proof of their coverage have found themselves with force-placed insurance anyway.

A force-placed lawsuit settlement can help homeowners who have been charged excessively by providing restitution. In addition, force-placed lawsuit settlements may bring penalties to lenders that can help bring about the necessary reforms to force-placed insurance programs around the country. One day, these necessary reforms to force-placed insurance programs will help save homeowners, taxpayers and investors millions of dollars via lower rates.

If your lender has force-placed you with an insurance policy, please contact our force-placed insurance lawyers at 866-723-1890 or email us here as soon as you can. Our force-placed insurance lawyers will be able to speak with you in a free and confidential consult to see whether you have a potential force-placed insurance lawsuit that can help you recover money you have spent and help you remove the force-placed insurance program from your mortgage as well.

You are encouraged to contact our force-placed insurance lawyer at 866-723-1890 or complete our contact form for reasons including:

  • If you defaulted on your mortgage or if you were foreclosed upon because of the forced placement.
  • If you were charged for force-placed insurance at a coverage price higher than the amount allowed by your mortgage.
  • If you had voluntary homeowner’s coverage in effect when you were charged for force-placed insurance
  • If you were charged commercial force-placed insurance rates on a one-to-four family residence.

Lenders include:

  • Ally Bank
  • Fifth-Third Bank
  • M&T Bank
  • Quicken Loans
  • Regions Bank
You may contact our force-placed insurance lawyer at 866-723-1890 or complete our contact form.