Anytime a mortgage is taken out on a property, the borrower pledges the property as collateral for the loan. As part of the mortgage terms, the borrower is then required to maintain property insurance including hazard, wind, and often times flood insurance, covering the property. The amount of the coverage is usually determined by the amount of the loan or monies loaned by the lender. If the property insurance is paid by the borrower annually, it is very important that the borrower keep the insurance current and not allow it to lapse. There have even been cases when the insurance was escrowed by the lender but perhaps a bill crossed in the mail or was lost, and the lender allows the insurance to lapse. A Notice of Intent to Cancel should never be ignored. This is a notice from the insurance company that the policy will be cancelled in a certain number of days.
So what happens if the insurance lapses (is not paid and cancelled)? Well, pursuant to the terms of most mortgages, the bank now has authority, given to them by the borrower homeowner, to purchase their own insurance policy, called Force Placed Insurance, and to charge it to the borrower. The bank can increase the limits of the coverage and ask for any endorsements or other items on the policy that may result in the cost of the policy rising to two and three times the original amount. The borrower then will receive a bill asking them to pay the amount in full or, if escrowed, may increase the monthly amount of the mortgage payment by the monthly premium (yearly premium divided by 12).
When homeowners receive this, it is too late and often they can not cancel the force placed and must wait a year. However, they also can not afford the payment nor the lump sum required to be paid by the mortgage company, and fall into default on their mortgage.
This has become one of the main reasons that homeowners are now falling into default of their mortgages and requesting loan modifications and/or short sales. The bank makes it difficult to work with them when they demand payment in full of sums due, and wont negotiate any terms when it comes to the insurance. However, there are many ways around it.
In my firm, we recently had a client obtain a proposal from their prior insurance agent, pay the premium, then showed the bank that the premium was paid. Once this was done, the lender agreed to cancel the forced placed, but there remained the issue of the past premiums. So this in turn had to be negotiated as well, and a portion may be forgiven, erased or a payment plan can be negotiated.
It is very important to enlist the services of an attorney to fight for your rights when force placed insurance or escrows cause you to become delinquent in your mortgage.
Often times, homeowners are not equipped to take this battle all the way to upper management, or perhaps can not determine when they are being ripped off by the lender.
If is imperative that the homeowner ask for the policy. Request a copy of the invoice and dec sheet or document evidencing the coverage limits, etc.
In fact, there have been a wave of lawsuits against certain lenders who were determined by the court to have worked together with the insurance companies, such as Citizens Property Insurance, and were receiving kickbacks from the insurance companies for putting the force placed insurance in place. Wells Fargo is one of those lenders being investigated for force placed insurance fraud.
If you are having difficulty paying your mortgage due to insurance escrows or insurance amounts being astronomically high, contact us today.
We can assist you in attempts to lower the amounts, investigate the force placed policies, and cancel them so you will not lose your home.
Call us today for a free consultation.