LawyersandSettlements (LAS): What is the practice of force-placed insurance?Lorenzo Cellini (LC): When a person takes out a mortgage to purchase his or her home, the lender requires as part of the terms of the loan that the homeowner maintain property insurance to protect the home in the event of a disaster. If the homeowner allows the property insurance policy to lapse, then the loan agreement allows the lender to purchase a new policy to protect the bank’s investment and then bill the homeowner for it. It is also known as “lender-placed insurance.”
LAS: Why is Force-Placed Insurance unlawful?
LC: Although the practice of force-placing insurance in and of itself is not unlawful, it became common within the mortgage industry for banks to partner with insurance companies that would charge consumers a premium for their force-placed insurance policies, in some cases many times above the market rate. A portion of this premium was then paid to the bank as a “kickback” for allowing the insurance company to force-place its policies on the banks’ borrowers.
LAS: The illegal aspects are kickbacks and retroactive billing. But without these two practices, the insurer and lender are within their rights to charge the homeowner?
LC: Unfortunately, yes. Under terms of loan agreements, the vendor requires you, the homeowner, to carry insurance in the event of disaster such as flood, fire, hurricane, etc. If you don’t purchase the policy, they have the authority to buy it on your behalf and they bill you for it.
Under their loan agreements, they have the authority, but in an industry-wide practice, banks partner with certain insurance companies and allow them to monitor banks loans to see if the borrower’s policies for property insurance had expired. And if so, they would charge way above market rates.
LAS: So financial institutions and insurance companies are in cahoots, working together to bilk the homeowner? That sounds very devious.
LC: It is devious. Abusing your contractual relationship is illegal and it takes unfair advantage of the contract you have with the consumer. You are not acting in good faith. Both sides are acting in bad faith and conspiring against the homeowner.
Through partnership with a lender (such as your bank), they charge a premium for the policy that they force-place and then they remit a portion of that premium to the bank in exchange for allowing them to have this partnership in the first place. In other words, they get an illegal kickback, as I mentioned above.
LAS: And if they find a policy that has lapsed, they will make even more profits at the homeowner’s expense.
LC: Yes. In some cases force-placed insurance was billed to homeowners retroactively. In other words, homeowners were billed for property insurance during the period of time that their previous policy had lapsed, in addition to being billed for a new policy going forward. Also, there have been reports suggesting that homeowners have been billed for forced-placed insurance even though they already have a policy that covers their home.
LAS: It sounds like the homeowner doesn’t get notified when it is time to renew their property insurance.
LC: You’re right, the homeowner is not notified if their policy has lapsed - the lender will notify by way of sending you a bill. They will send you an invoice for the new policy and sometimes they will also bill retroactively for the amount of time the policy has lapsed. For instance, your policy lapsed three months ago so here is what you owe us.
LAS: The homeowner cannot just say NO?
LC: There is not a whole lot that you, the policyholder/homeowner, can do at this point. If you don’t pay the premium, you are technically in default and the bank has the right to foreclose on your home. Of course, you can complain or plead to get the bank to remove the charge, but if the financial institution refuses, you, the homeowner, will either have to pay up or be at risk of defaulting on your loan. Once you get behind on your loan, the cost of servicing it goes up and up, and you get stuck in a very difficult situation.
LAS: There has to be something homeowners can do to protect themselves and prevent this bad faith practice from occurring.
LC: One thing they can do: Buy a new policy from a market rate insurance company once the force-placed policy is expired. But there is nothing they can do now. And check your policy today to find out when it expires.
LAS: Will there be a forced-place insurance class action anytime soon?
LC: We are currently investigating the potential of bringing a class action. If we are satisfied that we have identified an individual who was victimized by this practice that we believe is unlawful, we do intend to bring a force-placed insurance class-action lawsuit - against these lenders in particular:
BB&T
Ally
Flagstar
Fifth Third
Quicken
PNC
PHH Corp
MetLife Bank
Nationstar Mortgage
Provident Funding
Regions Financial
LAS: When you mentioned earlier that homeowners need to carry insurance due to the forces of Mother Nature (such as hurricanes and flooding), do you see this practice occurring in states more affected by natural disasters? In other words, the more clauses in your policy, the more chances of getting ripped off?
LC: We believe it is a national problem and there is ongoing litigation brought in a variety of different states, from Florida to California. At the same time, insurance fees can vary from state to state and by the individual.
LAS: Can you file an individual force-placed insurance lawsuit?
LC: Yes. In some cases individuals can get billed for a substantial amount if they have let their policy lapse - if they have been without insurance for some months. For example, in a case filed against Wells Fargo, one of the plaintiffs was billed an annual premium of force-placed insurance for $25,000. In that same case, another plaintiff whose policy lapsed 30 days was charged $1,700 for that one month alone. It is expensive.
LAS: If the homeowner believes they have been unlawfully charged, would you advise they file an individual claim or wait for a class action?
LC: It would depend upon your circumstances. If you did get billed thousands of dollars, then you may want to consider proceeding on your own and hire a Forced-Place Insurance lawyer. But if it is just one month, like the above incident, there may not be enough money to proceed, which is why we are investigating a Force-Place Insurance class action. And we believe thousands upon thousands of people have been subjected to force-placed insurance terms.
One more piece of advice: This is an industry-wide practice that behooves consumers to make sure their policy is in place so they don’t end up in this situation.
Since joining Tycko & Zavareei, Mr. Cellini has practiced primarily in the area of civil litigation. He has represented both individuals and companies in a variety of civil disputes involving real estate, unfair competition, employment, False Claims Act, products liability and consumer class-action law. In addition, Mr. Cellini has represented individual tenants and tenants’ associations in connection with preserving and enforcing their rights under the laws of the District of Columbia. Before joining Tycko & Zavareei LLP, Mr. Cellini practiced law in Tucson, Arizona. He specialized in commercial litigation, with an emphasis on contract disputes, real estate, intellectual property and bankruptcy. Further, while in law school, he served as a law clerk in the Antitrust Division of the U.S. Department of Justice, where he assisted in investigations of anticompetitive conduct and proposed mergers. Before attending law school, he worked in the Federal Trade Commission’s Bureau of Competition.
READER COMMENTS
William C Thomas
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in which little was said by them. Even though we could win, due to severe medical conditions and finance problems, we could not pursue the matter at that time. During this period I did get a letter from citi mortgage admitting that I did have a non escrow account but they still continued to deduct for taxes, ins, penalties, fines , and etc. The actual balance on the house was 98,000 but the final judgement total was 138,000. All research and documents by two lawyers have already been completed. I need representation along with experience. Thank you for your time and understanding in this matter. Hope to hear from you.
kathleen schaub
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Kenneth William Huffman
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Teresan M Pina
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John Kliesh
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Additionally when they send you a letter about the insurance they will also demand that you have a insurance policy in the amount of the market value of the property. When in fact Federal Laws state you only need a policy in the amount of the Mortgage Note only.
Attention to Pennsylvania people any claims of Fraud due to insurance, in a foreclosure Action. Means that the Foreclosure Action has to be transffered to the Federal Courts. A State Judge has NO Jurisdiction over the claims, whereby, if a state court judge makes a ruling on the charge. Then the Judge is committing TREASON for making a ruling on subject matter which they hold NO jurisdiction over.
kellerjosef260
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was challenged with the affiliation (Kick back)question by the HUD -chief last friday. Yes or NO? He refused to answer,under oath and 10 feet away from him a US MArshall with his set of handcuffs on his belt. No answer means Yes - definitely there is affiliation,big time affiliation. In Florids the following is in the works: 24000 classactionmembers were drummed up.WellsFargo CEO , with his annual 21 million take-home income had the courtesy to turn 19 Million $ and cutaway the bribe for the lawyers 5 millions,for their lousy work. Federal Judge Robert N.Scola is dragging on, he wants to hear more from the homeless homeowners,more from the victims and waits for that supersmart lawyer,who even goes into the Florida statutes where it says : Consumerprotection ,Premiums of insurers can not hike higher the 10% p.a. Here again Lawyers work for themselves ,not really for you. You can either get your downpayement back or you take the house from them, if you have defaulted(or Lis Pendens,or foreclosed,if you are foreclosed you missed your turn in court !..and the bank did not) because only and only the force-placed insurance premium billed to you.
If the house is showing expirations in the for the 4-point inspection ( in most cases roof and electrical wiring ,very substantial to repair 30000 and 45000)
your house is no longer insurable for the amount that the bank would wish for. Risk and value = zero,premium zero.But the bank (they have built crossed-crossed networks among themselves and "independent on the open market" insurers.)
By origination you had your premium, when inspections are due
(they are free) you have to refuse them,in Florida , you hold the title and none else can trespasswarn lienholders,thief's,arsenists and/or fraudsters. So they terminate insurance ,you are an unknown risk.Retroactive billing you must deny ,thats a trick ,they want you to for sleep a 6 month period (mutual acceptance etc) and confuse you when the attack comes , the hike in your monthly payment.
If terms require you to allow inspections , you allow ,and work with the Lawyers for a fine way out in equity loans.Equity will come along with the work order.
get a QWR (qualified written request) to your lender /servicer about retroactive billing ,identify the sum and request them to put the Money back were they pulled it from,as a result your
principle will show lower for a few thousands over night. Products must be bought in knowledge of the purchaser and
in case of acting under POA ,the bank must establish live contact with you then , not 1 to 8 years later (the more collateral they can secure on you, the longer they wait with their ugly attack) .Once the foreclose ,they do same procedure with the next guy/gal and collect a new downpayment again. Do the math,30 yrs no downpayment on the table , against let's say 5 or 6 or 7 collected and forfeited! yours is forfeited they claim if you fight for it(which is now in California the newest hit and may throw major banks of balance
if this is going to happen). Once this is accomplished it is relatively easy , you have proof , of how much they were lending you ,behind your back, you can get them to lend you
the same amount again,subsequently to bring the 4-point inspection to pass.And market standard insurance becomes available again.Anyway develop your strategy ,you can also just refer to consumer law with the 10% price hike and say the product you have purchased here is insufficiently in your interest and your participation is only 1.1 times as it was before,when you had insurance,pass the headache of remodeling or the headache of getting a smaller sum insured , to them,not to you. One case in California ,a homeowner got a nice sum compensation for pain/suffering psychologically seeing his Downpayment forfeited and house gone.I (hotmail)did not see the case yet ,but i sure hope the sum was covering the necessary cash to start were he was when he defaulted., with a different nicer house.See also CNN super moon comments