Force-Placed Insurance Settlements Lead to Significant Payouts

Thanks to a few successful plaintiffs, several major banks have agreed to reimburse homeowners for part of the expensive premiums they paid for force-placed insurance.

Home mortgages and deeds come with some obligation on the part of the borrower to maintain hazard insurance.

Lenders generally impose this requirement as a prerequisite for approving the loan. Mandatory hazard insurance not only protects the borrower in case of damage or destruction of the property; it also reduces the lender’s exposure to risk of loss.

Some lenders want additional protection from the possibility that the homeowner might allow the hazard insurance to lapse, or that they might simply cancel it behind the lender’s back. That’s where force-placed insurance comes in.

Under a lending agreement with a force-placed insurance provision, if the borrower fails to maintain the proper insurance, a new insurance policy will automatically kick in. These policies are usually dictated by the bank, often in cooperation with insurance companies with whom they have a particular business relationship. Often insurance companies pay banks a commission to work their insurance products into their lending agreements.

What’s worse for the borrower is that these automatic policies tend to be much more expensive than those the borrowers are paying themselves. Some consumer advocates say they can cost as much as 10 times more. In addition, if a force-placed policy is imposed, the borrower gets stuck with that hefty bill.

Despite the greater cost, these force-placed insurance policies generally do not cover as much as what the borrower’s own homeowner’s policy covers.

Fay Servicing LLC is an example of one mortgage servicer that uses force-placed insurance. Fay Servicing is a Chicago-based mortgage servicing company founded in 2008.

According to company websites, Fay Servicing provides “innovative servicing solutions for both performing and non-performing mortgages.” Fay Servicing prides itself on what it believes to be an innovative business strategy of building a relationship with borrowers and aligning its interests with those of its clients.

Though it touts an ability to establish and maintain healthy and happy relationships with borrowers, Fay Servicing has looked to insurance company IL Group to provide lender-placed and force-placed insurance products.

A report on IL Group’s website says the company also accommodates unique requests from Fay Servicing, such as sending disclosure letters as if they came directly from Fay Servicing itself.

Forced-Placed Insurance Lawsuits

Several borrowers have recently found some recourse against this practice by bringing forced-placed insurance lawsuits against their lenders.

In 2013, Wells Fargo and QBE agreed to settle one such force-placed insurance lawsuit to the tune of $19 million. The settlement would allow Florida homeowners hit with a force-placed insurance policy to apply for a 25 percent refund of the premiums they paid. Sources involved with the claim said this agreement was the first major settlement of its kind over force-placed insurance.

Other major lenders are also agreeing to significant settlements. Assurant and JP Morgan Chase have agreed to pay $300 to about 780,000 affected borrowers. Citigroup and Assurant also agreed to a $110 million settlement a few months later.

Both these settlements will allow homeowners to claim as much as 12.5 percent of the premiums they had to pay under their force-placed insurance policies. The banks also agreed to stop accepting commissions from insurance companies for six years.

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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