Wites & Kapetan Announces Investigation of Complaints About “Force-Placed” Homeowner’s Insurance
PR Web |
Wites & Kapetan recommends that homeowners review their homeowner’s insurance policies to avoid "force-placed" insurance. Most home mortgages obligate the homeowner to maintain a homeowner’s policy that names the bank as an “additional insured.”
As explained by
"Because these policies cover a more limited risk – the bank’s interest in the property – one would assume that they would be less expensive than the lapsed homeowner’s policy. In the vast majority of cases, however, that would not only be incorrect, but the limited “force-placed” policy could be several times more expensive than the homeowner’s policy which just lapsed. Furthermore, the homeowner often does not learn of the existence of this policy until the bank sends an invoice or escrow adjustment months later. By that time, several months of a staggeringly expensive policy will have been billed to their escrow account or added to the loan,” said
Explanations for These Unreasonable Costs
According to
1. First, the bank knows that it will pass the cost on to the homeowner, so it has little motivation to “shop” for the best-available rate.
2. The bank may have an “insurance agency” subsidiary who receives a payment from the insurance company based the issuing of the policy. In other words, a company related to the bank receives a payment, usually named a “commission,” based on the cost of the insurance. As a result, not only does the bank have no incentive to seek out the most economical policy but it has an incentive to generate a large commission for its related company.
3. In addition, some banks have exclusive or near-exclusive relationships with insurance companies. They place virtually all of the force-placed policies with that insurance company who, in turn, pays the “commission” to the bank’s insurance subsidiary, although the insurance subsidiary does little or nothing to “earn” the commission because of the assumption that the policy will be placed with the insurer in question.
and
4. In some cases, the relationship between the bank and the insurance company is so “cozy,” that the bank “outsources” the administrative job of monitoring whether its borrowers have homeowners’ insurance to the insurance company. The insurance company has access to the bank’s mortgage records and, rather than wait for the bank to contact them for a policy, the insurance company determines when lapses occur and issues the policies to the bank at the same time, or before, it informs the bank of the lapse.
Worthy of Complaint?
Banks have an obligation to seek out force-placed policies on the open market, which will be closer to the rate of the homeowner’s policy that lapsed. In many cases,
In addition, in many cases, the amount charged to the homeowner for a force-placed policy is not the bank’s “real” cost of the policy because (a) its related company gets a “commission” based on the policy’s cost without doing much, if any, work, and (b) in cases where it “outsources” the monitoring function, it often receives these services for free, or for far less than it would cost them to handle the operations “in house.” Yet, Wites discovered Federal laws prevent banks from accepting any fee, kickback, or thing of value based to any agreement or understanding, oral or otherwise, for the referral of any business “incident to or a part of a real estate settlement service involving a federally related mortgage loan.”
Wites & Kapetan further explained the situation like this: the homeowner agreed to accept and pay the debt incurred through your mortgage, but almost certainly did not agree to pay excessive rates for inadequate homeowner’s insurance.
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