What is force-placed insurance?
Force-placed insurance is hazard, flood, fire, or other insurance purchased by a mortgage lender for a mortgaged property. The vast majority of mortgages allow lenders to force-place insurance when the borrower does not maintain insurance on the property. In general, this insurance costs more than the market value of a similar policy.
When do lenders force-place insurance?
Lenders will force-place insurance if the borrower is not maintaining insurance on the property. If a borrower fails to send proof of insurance to the lender, or if the lender claims it lost or never received the proof of insurance, then the lender will force-place insurance. In many situations, any type of default under the mortgage will trigger force-placed insurance. Sometimes a trial loan modification or a Chapter 13 bankruptcy will cause the bank to force-place insurance.
Who owns these insurance companies?
Believe it or not, many lenders own the insurance companies from which they purchase the force-placed insurance. You may have even signed a "Disclosure of Controlled Business Arrangement" form when you closed your loan. These forms are used to put consumers on notice that the lender owns and uses its own subsidiary businesses to perform many tasks associated with mortgage lending, including insuring properties and appraising properties.
What can I do if my lender has force-placed insurance on my home?
If your lender has improperly force-placed insurance on your home, your next step depends on your current situation. If your loan is current and you're suddenly facing a large escrow payment, then your lender has likely force-placed insurance on your home. In that situation, contact your lender and provide proof of your homeowner's insurance.
If you are facing foreclosure or are in a bankruptcy and you believe that your lender has force-placed insurance on your home, contact your attorney to determine whether you have legal recourse against your lender. The Chicago foreclosure attorneys at Atlas Consumer Law can evaluate your loan's payment history and determine whether your lender has force-placed insurance on your home.
In some situations, this practice violates the law and you may have a remedy. Contact us to learn about your rights.