Has your home insurance company notified you that your policy is being canceled or won’t be renewed?
If so, you should quickly secure a new policy if you are still making mortgage payments on your home.
Don’t procrastinate. Don’t blow off the notice. Buy a policy from state-run
You won’t like the alternative.
It’s called force-placed insurance, and your mortgage contract gives your lender the right to protect its interest by putting one on your property if you let your policy lapse.
It’s expensive — as much as two to 10 times as costly as normal insurance. You will be required to pay the inflated premiums, increasing your monthly mortgage payment.
You might lose the right to sue over claims disputes.
And it won’t cover your personal property or medical care for others who get injured on your property.
Consumer advocates fear that Florida’s insurance crisis and the expiration of federal moratoriums on foreclosures will lead to an increase in force-placed insurance, which is also known as creditor-placed or lender-placed insurance.
“I expect an explosion in force-placed policies as [pandemic-related] protections subside,” said
That era was marked by abuses by home loan servicers and insurers that triggered class action lawsuits, multimillion-dollar settlements and federal protections for borrowers of loans backed by
Servicers and insurers were accused of working together to reap windfall profits on policies placed on troubled properties.
Regulators found that insurers were paying lucrative commissions or other incentives to loan servicers that purchase force-placed policies. Loan servicers were accused of force-placing insurance on properties without giving borrowers adequate warning.
Insurers were accused of issuing policies on properties serviced by affiliated companies, and providing reinsurance for properties insured by companies owned by loan servicers.
And insurers were discovered providing kickbacks to loan servicers in the form of free or below-cost administrative services, including monitoring borrower databases to identify which ones stopped carrying their own insurance and were thus eligible for forced-placed coverage — a service called insurance tracking.
“In some cases, mortgage servicers were getting close to 50% of premiums kicked back in the form of commissions, reinsurance and free or below-cost services,” Birnbaum said.
In 2014, Wells Fargo and two lender-placed insurers,
In arguing for increased protections, Birnbaum cites data showing that the top seven force-based insurers in
Traditional insurers in
Loopholes still hurt consumers
State and federal-level reforms, including in
Currently fewer than 10% of
Federal reforms have offered consumers some protections, including requiring loan servicers to continue making payments for traditional insurance if the borrower has an escrow account and cannot afford to make the insurance payments. That requirement, however, does not cover borrowers whose policies are canceled or not renewed.
Loan servicers are also barred from force-placing insurance without a reasonable basis to believe that the borrower failed to maintain insurance coverage as required in the loan documents.
Servicers must send two notices before purchasing a force-based policy. The first must be sent at least 45 days before purchasing the force-placed policy. The second must be sent no earlier than 30 days after the first notice and at least 15 days before charging the borrower for the force-placed insurance. This notice must include the cost or a reasonable estimate.
If a borrower with force-placed coverage provides proof that a traditional policy has been purchased for the property, the servicer is required to cancel the force-placed insurance within 15 days of receiving the evidence and refund any premiums charged while both policies were in place.
Loan servicers don’t always comply with that requirement, according to a lawsuit filed
Low-income borrowers are most vulnerable
“Typically, the cancellation letters are drafted in an alarming way to push the insured to find other coverages,” he said by email. “In most cases the cancellations provide significant notice and the insureds are aware that not having coverage will lead them down the path to force-placed coverage.”
If their escrow account doesn’t have enough money to cover a sudden insurance rate increase, their lender will ask them to come up with a lump sum to cover the shortfall. If they can’t afford the lump sum, their policy won’t be renewed and their loan servicer could then force-place a more expensive policy. That could make their new mortgage payment unaffordable, triggering foreclosure and possible loss of their home, he said.
Others will struggle to make their payments not knowing they are paying more than they should for insurance that doesn’t cover as much and doesn’t name them as a beneficiary of the policy. “And they won’t know that until it comes time to file a claim,” he said.
©2021 South Florida Sun-Sentinel. Visit sun-sentinel.com. Distributed by Tribune Content Agency, LLC.