Force-Placed Insurance Lawsuits Hold Lenders Accountable

Forced-placed insurance catches some homeowners by surprise when, for whatever reason, their own homeowner’s insurance policy lapses.

While this practice by lenders isn’t necessarily illegal, some lenders have gotten too creative in their relationships with forced-placed insurance providers and found themselves on the receiving end of an insurance class action lawsuit.

As a requirement for mortgages, lenders require borrowers to maintain fire, flood or other insurance on the property. The same goes for loans made under a deed of trust.

The insurance protects the lender’s financial interest, so if the homeowner allows their insurance coverage to lapse, the lender may take out its own insurance policy on the property. When that happens, the lender will bill the borrower for the new premiums, typically by adding the cost of the new insurance to the required loan payment.

This lender-initiated insurance is what’s known as force-placed insurance. A lender may also initiate this type of insurance if the borrower’s insurance doesn’t meet the lender’s requirements, the borrower never gave the lender proof of coverage, or the borrower never bought insurance in the first place.

Forced Insurance Coverage

Force-placed insurance tends to provide less coverage than a homeowner’s policy. Since it’s designed to protect only the lender’s interest, it won’t likely provide coverage for things like personal property or other coverage that homeowners may add on to their own policy.

Despite it’s narrower scope, force-placed insurance can be particularly expensive. For borrowers struggling to make mortgage payments, a sudden bill for force-placed insurance can drive them toward foreclosure faster.

Fortunately, borrowers enjoy some legal protections relevant to force-placed insurance. Under the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, a loan servicer must send the borrower a detailed notice before ordering force-placed insurance.

At least 30 days later, the servicer must send the borrower another notice; then the borrower has within 15 days of the second notice in which to provide proof of insurance coverage. If the borrower does not provide such proof, the servicer may then order force-placed insurance.

Imposition of force-placed insurance isn’t new — it’s been a component of many home loan agreements for several years. There’s also nothing inherently unlawful about it. But some force-placed insurance arrangements allegedly involve kickbacks paid from the insurer to the bank, kickbacks that originate as excessive premium costs for the borrower.

Force-Placed Lawsuits

One insurance class action lawsuit filed in Florida resulted in a forced-placed insurance settlement totaling $140 million. Plaintiffs alleged that Ocwen Financial Corp. had worked out a deal with insurance company Assurant, in which Assurant allegedly paid Ocwen kickbacks and other compensation in exchange for Ocwen’s ordering of Assurant force-placed policies with inflated premiums passed on to unwitting borrowers.

One plaintiff alleged that after he allowed his policy with a $700 per year premium to lapse, Ocwen force-placed a policy with a $2,180 annual premium. Another plaintiff said that when her policy lapsed, Ocwen force-placed a policy that covered more than double her outstanding loan balance, charging an excessively high premium to match.

The settlement includes borrowers whose loans were serviced by Ocwen Financial from January 2008 to January 2015. Payouts for each member of the plaintiff class can depend on how much they allegedly overpaid.

Join a Free Force-Placed Insurance Class Action Lawsuit Investigation

If you paid for force-placed insurance from a lender, you may be eligible to join a free class action lawsuit investigation into the improper charges you may have paid.

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