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Force-Placed Insurance & Banks
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Banks, lenders and loan service providers face force-placed insurance lawsuits alleging their force-placed insurance pushes already financially-burdened home owners into greater financial crisis, putting them at risk of foreclosure. Furthermore, allegations have been made that force-placed home insurance is much more costly than traditional home insurance and could be a conflict of interest for some financial institutions.
According to Bloomberg (05/06/12), banks and mortgage services have agreements with insurance companies to buy policies on behalf of a homeowner whose insurance coverage has lapsed. The bank forwards the premium to the insurer, the insurer pays a commission to the bank and the homeowner is billed for the premium and commissions. Bloomberg notes that premiums on force-placed insurance were in excess of $5.5 billion in 2010.
Forced-Place Insurance Complaint
Forced-place insurance allows banks and lenders to protect their interest by allowing them to put insurance on a property that they have a mortgage on. Critics say that once the financial firms realized there was profit to be made in force-placed insurance, financial institutions formed their own specialty insurance companies, so they could offer force-placed insurance on properties without insurance coverage.
Some regulators, including in New York and California, argue that the percentage of premiums paid on claims are lower than insurers said they would pay out. Although insurers reportedly estimated a loss ratio of 55 cents on the dollar, they actually pay out about 20 cents on the dollar.
Furthermore, some critics argue that force-placed policies have less protection than cheaper policies and the policies usually protect the lender, not the homeowner. Finally, there have been complaints that servicers are not removing the force-placed insurance quickly enough. Once a homeowner shows proof he has other insurance coverage on his house, the force-placed insurance should be removed, but critics argue that the removal is happening too slowly.
Many consumers whose insurance coverage has lapsed are already at risk of having their home foreclosed on; their insurance lapses because they cannot afford it. Critics of force-placed insurance argue that the coverage is so expensive, it further pushes homeowners into financial crisis, increasing the risk of foreclosure. They state that if the cost of force-placed insurance reflected the actual pay out, the financial burden on homeowners would be reduced.
Forced-Place Insurance Lawsuits
Force-placed insurance lawsuits have reportedly been filed against banks, lenders or loan service providers for force-placed mortgage insurance. The lawsuits allege consumers are charged excessive and unreasonable premiums for their force-placed insurance. Plaintiffs argue that force-placed insurance policies cost up to 10 times more than traditional homeowners insurance. Meanwhile because banks have set up their own specialty insurance affiliate companies, there are concerns that the financial institutions are involved in a conflict of interest. Finally, there are allegations that unrelated companies may have offered kickbacks for forced-place insurance policies.
Force-placed insurance lawsuits allege that financial firms impose onerous force-placed insurance contracts, requiring property protection where none was previously required. For example, one force-placed insurance lawsuit against a financial firm argues that the defendant charged borrowers for flood insurance at almost 10 times the market rate even though flood insurance had not been required from previous insurance providers.
According to The New York Times (01/10/12), JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are being investigated by the New York State's Department of Financial Services. The same article notes that one investigation involves a homeowner who paid $2,000 for home insurance to State Farm, but wound up paying $6,000 a year in forced-place insurance.
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FORCE-PLACED INSURANCE AND BANK LEGAL ARTICLES AND INTERVIEWS
Forced-Placed Insurances Leaves Homeowners Out in the Cold
Washington, DC: There is little doubt that the act of allowing homeowner insurance to lapse on a mortgaged property is not, with little exception, done maliciously. For most, the lapse of property insurance has more to do with human error (forgetting to renew), or financial hardship (“do we pay the insurance this month, or feed the baby?”) There is also little doubt, however that while Lender insurance is a perfectly legal and appropriate response in order to protect the investment of the lender, the extraordinary costs associated with lenders insurance are both mean-spirited and unnecessary [READ MORE]
Another Forced-Placed Insurance Class Action in the Works
New York, NY: Yet another Lender insurance class action lawsuit could soon be in the pipeline with investigation into the machinations of Cenlar FSB, identified as a leading provider of mortgages and mortgage servicing suspected of participation in a ‘cozy’ relationship with a provider of lenders insurance [READ MORE]
Plaintiff Files Putative Forced-Placed Insurance Class Action
Chicago, IL: As Americans continue to bring Lender insurance lawsuits against entities that allegedly force-place insurance onto property owners at higher rates, Canadians who own property in the US continue to be warned about the potential for lenders insurance [READ MORE]
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Wells Fargo forced-placed flood insurance in excess of my current policy that more than covered their interest in my home. This has more than doubled the cost of my flood insurance. $88,000 loan that was sold to Wells Fargo at that time they forced-placed $230,000 in flood insurance. I already had $100,000 in flood insurance coverage thru State Farm. They keep raising my monthly payment on my house; my house payment is $410/ month. After all escrow, my house payment is now in excess of $1,100 per month with forced-placed insurance. Day I purchased home, flood insurance was $434 per year. Current policies including forced-placed insurance is now at over $4,000 per year for flood insurance. I am about to lose my home due to the increased costs associated with this flood insurance.
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