The latest Force-placed insurance lawsuit has been filed as a class action in US District Court for the District of New Jersey. Plaintiffs Barbra Bowles of New Jersey and Latasha Jackson of Mississippi accuse three defendants of unjustly profiting from borrowers through the placement of Force-Place Insurance.
The defendants in the lenders insurance class action are identified as Fay Servicing LLC, American Modern Home Insurance Company, and Southwest Business Corporation.
The allegations read like a shopping list: breach of contract, breach of good faith and fair dealing, violations of the New Jersey Consumer Fraud Act, tortious interference with a business relationship, unjust enrichment, violations of the Truth in Lending Act, and violations of the Racketeer Influenced and Corrupt Organizations Act.
Force-Place Insurance, as the term implies, is the placement of property insurance on real property that is normally the responsibility of the property owner, without the property owner’s consent. There are indeed occasions when the placement of lenders insurance is appropriate and just: while an individual with outright ownership of a property may or may not have insurance in place in order to protect a catastrophic loss, a mortgaged property is required to carry sufficient insurance in order to protect the investment by the mortgage provider for the property in question.
No one argues with that - especially when property owners have been found to allow insurance to lapse due to financial hardship, forgetfulness or just plain ignorance.
The problem, allege many a plaintiff behind a Force-placed insurance lawsuit, is when Forced-Place Insurance exceeds the value of the mortgage or translates to less coverage at higher rates than standard insurance products.
That’s because, or so it is alleged, insurance companies conspire with mortgage providers and other entities to force-place insurance that either isn’t necessary, or is more coverage than needed at substantially higher rates, with kickbacks shared between the parties.
Specifically, the defendants in the aforementioned Force-Place Insurance class action are accused of engaging in a pattern of unlawful profiteering and self-dealing on the backs of property owners.
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The lawsuit further states that holders of Fay mortgages should have rebates passed on to them. In the absence of rebates, the costs for kickbacks are borne by the property owner.
Such forced-placed insurance terms are unacceptable, the lawsuit says.
It should be noted that some Canadian banks, including RBC, have apprised their snowbird clients of the situation, advising any Canadian owning mortgaged property in the United States that Lender insurance could be an issue.
The Force-Place Insurance class action is Bowles et al v. Fay Servicing LLC et al, Case No. 2:2016-cv-02714 in US District Court for the District of New Jersey. The proposed class action was filed May 12, 2016.