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Force-Placed Insurance Companies Could Face Government Lawsuit

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Washington, DCIn addition to force-placed insurance lawsuits filed by homeowners who allege illegal kickbacks have been involved in lender insurance, companies could face a lawsuit from the federal government. According to reports, the government may sue some mortgage servicers over force-placed insurance kickbacks that may have cost Fannie Mae and Freddie Mac hundreds of millions of dollars.

Lawsuits against various banks and mortgage servicers have already been filed by homeowners, who allege banks and insurance companies were involved in illegal kickback schemes that encouraged force-placed insurance to be placed on homes. Force-placed insurance policies can be up to 15 times more expensive than commercially available policies because the homeowner has no say in which company provides the insurance.

Other allegations in force-placed insurance lawsuits include claims that the insurance was wrongly placed on a home that had sufficient insurance, that the amount covered by the policy far exceeded the mortgage servicer’s interest in the home and that the policies were sometimes placed retroactively on the property, even when no claims were made.

Some settlements have been announced in the lawsuits, including one with SunTrust Mortgage (case number 0:13-cv-60749) that alleged insurance premiums were inflated due to a kickback agreement between QBE Specialty Insurance and SunTrust. As a result of the settlement, SunTrust will reportedly return more than 10 percent of the premium it received from its force-placed insurance policies to class members.

The lawsuit was filed by a plaintiff who alleged that when insurance was force-placed on her property, her premium jumped from $2,400 to $10,181, despite her property value being only $84,000.

As a result of concerns about force-placed insurance premiums and alleged kickbacks, the government is now considering whether or not it will sue mortgage services and banks. The Associated Press (6/25/14) notes that a report regarding Fannie Mae and Freddie Mac’s finances suggested massive losses due to force-placed insurance fees, which could be the basis for a lawsuit against companies involved in force-placed insurance.

In 2011 and 2012, New York’s Department of Financial Services conducted an investigation into force-placed insurance due to concerns about the high premiums and questionable payments to various companies. The department also cited a potential conflict of interest on the part of banks involved in force-placed insurance.

Force-placed insurance is often placed on homes where the homeowner is already struggling with a debt burden. The addition of an expensive insurance policy on top of that debt can make it almost impossible for the homeowner to avoid going into foreclosure.

In 2013, New York’s Department of Finance announced it had reached settlement agreements with a variety of force-placed insurance companies.

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