What is Force-Placed Insurance?
Most people use lenders, or mortgage servicers, to secure mortgages when purchasing a home. In mortgage contracts, there are generally provisions that require borrowers to maintain property insurance on their homes. Force-placed insurance, also known as creditor-placed, lender-placed or collateral protection insurance is an insurance policy placed by a lender, bank or loan servicer on a home when the property owners’ own insurance is cancelled, has lapsed or is deemed insufficient and the borrower does not secure a replacement.
Under What Circumstances Does a Lender Force-Place Coverage?
• The property owner has a homeowner’s policy, but the lender has not received proof of coverage with the lender shown as the mortgagee.
• The property owner does not have a homeowner’s policy. This could be because the property owner did not purchase a homeowner’s policy, the homeowner’s policy was cancelled or non-renewed by the insurance company, or the homeowners policy expired because the renewal premium was not paid.
• The lender has evidence of the homeowner’s insurance policy, but the amount of coverage, deductible, or type of coverage does not meet the requirements of the loan agreement.
• A lender may also force-place flood insurance on homes in flood zones that they believe do not have enough flood insurance to meet the legal minimum required to protect the property.
Force-placed insurance is not a new thing, during the mortgage crisis in 2008, many homeowners could not afford their mortgages and stopped making their mortgage payments and often, their homeowners’ insurance payments as well. When this happened, lenders force-placed insurance on the homes, resulting in most foreclosed homes having a force-placed policy. This makes sense from the lender’s standpoint. If the property is damaged before the borrower pays off the mortgage loan and he cannot afford to fix the damage, the lender loses money on its loan.
What is the difference between a force-placed insurance policy and a homeowner’s policy?
A homeowner’s policy, which you can purchase on your own, provides more coverage and typically costs less than force-placed insurance. Unlike a homeowner’s policy, force- placed insurance policies do not provide protection for personal property. Some force-placed insurance policies limit the amount of the coverage to the outstanding balance of the loan. This type of force-placed policy is commonly referred to as a single-interest policy because it only protects the lender’s interest in the property. If the house is destroyed by a fire or other covered cause of loss, the single- interest policy typically only pays enough to pay off the outstanding balance on the loan to the lender.
What to Do If Your Lender Has Force-Placed Insurance on Your Property
As soon as possible, contact an insurance carrier and get a new policy or seek to have your old policy reinstated. Even if you believe the servicer is at fault, you should continue to make payments to cover the force-placed insurance. Gather detailed proof of the new insurance and send a copy of the relevant documents to your servicer. Request that they cancel the force-placed insurance policy they obtained for you as soon as possible.
Homeowners who have forced-placed policies against their property should be aware of the hurdles they may encounter when trying to recover losses from their insurance company. Any errors or omissions may result in a reduction in the amount paid to you or even a complete denial of your Insurance claim by the Insurance carrier. Regardless of the complexity of your property insurance claim, our team of attorneys have decades of experience providing affordable representation to clients facing a wide range of insurance claim issues. Contact our law firm today at (305) 300-3000 for a free consultation to see what options may be available to you.