Some banks and lenders may be imposing unauthorized force-placed flood insurance in California, which is insurance placed on a borrower’s property when the borrower’s insurance lapses or when the borrower fails to maintain an insurance policy that is acceptable to the mortgage lender.

This is essentially done with the improper intention to change the flood insurance requirements that the bank or lender enforced on loans owned in order to reap financial benefits in the form of fees, commissions, kickbacks, and other compensation.

What is Force Placed Insurance?

When a homeowner’s hazard, flood or wind insurance policy lapses for any reason, banks, lenders or loan servicing companies, often force the homeowner to purchase policies with substantially higher premiums. This is commonly referred to as force placed insurance.

These force-placed insurance policies, while not illegal, often provide unnecessary or duplicate coverage because they are backdated to collect premiums for periods of time when the homeowner has no risk of loss.

These actions are utilized by banks to increase their bottom line. Banks often establish arrangements with a force placed insurance provider that has agreed to share premiums with a subsidiary of the bank. These payments may represent unlawful kickbacks to the bank.

While force-placed flood insurance in California may seem justifiable, the controversy over the practice is called into question when the lender purchases force placed insurance to protect their asset, but at the expense of their customer.

Essentially, the force-place flood insurance policies the banks buy are usually more expensive than what homeowners would buy for themselves on the open market – sometimes 10 times as expensive, according to consumer advocates.

The banks and the companies that sell force-placed insurance say this is because they have to insure every house they’re presented with, rather than picking and choosing the least-risky ones.

Lawsuits Over Force-Placed Flood Insurance in California

Recently, there have been several class action lawsuits brought by homeowners who allege they were charged inflated rates for force-placed flood insurance in California.

In 2013, lender U.S. Bank was accused of running an anti-competitive scheme to overcharge at least 40 homeowners force-placed flood insurance in California and other states with rates that were inflated by improper kickbacks and policy backdating.

This case was settled in April 2016.

Another case involving force-placed flood insurance in California was filed in the Northern District of California against JPMorgan Chase.

This lawsuit alleged that JPMorgan Chase imposed a force-place flood insurance policy to satisfy its improper flood insurance requirement at a high premium and assessed the premium costs on the homeowner.

The cost of the policy was either deducted from the borrower’s escrow account or added to the mortgage balance. As a result, the customer had no choice but to pay the premiums.

JPMorgan Chase settled this lawsuit in 2013 for $22.1 million.

If you believe you were forced to pay for an over-priced, unnecessary or otherwise excessive force-placed flood insurance in California, you may be able to file a claim to recover monetary damages or you may be eligible to join a class action lawsuit investigation and seek compensation for the improper charges you paid.