Some lenders’ practices surrounding force placed insurance may be unlawful, and affected homeowners may have legal recourse available to them.

What is Force Placed Insurance?

Homeowners are often required by their lender or banks to keep different types of property insurance including hazard, flood or fire insurance. If a homeowner’s insurance lapses for some reason, sometimes banks or lenders force those homeowners to buy a new policy, one that the lender chooses. This requirement is often written into the borrower’s mortgage agreement.

Force placed insurance is this type of insurance: a replacement insurance policy that is forced upon a homeowner by the bank or lender, often at a higher premium.

Many homeowners who must experience this type of force placed insurance believe that it is unfair and that they are being overcharged for insurance. Other names for this type of insurance include “lender-placed” or “creditor-placed.”

The National Association of Insurance Commissioners notes that forced placed insurance has garnered attention recently in the media as homeowners are taking notice when their banks force them to purchase this type of insurance.

The NAIC says, “[t]he [media] attention has primarily focused on the rates charged for lender-placed insurance policies and whether insurers and lenders are making “excess” profits on this line of business. Typically, the lender-placed insurance premiums are significantly higher than the property insurance the borrower could have purchased on their own. In addition to being more expensive, the lender-placed insurance policy also has limited coverage.”

Many customers believe this is an unfair practice. Also, in many cases, if a borrower does not pay for the premiums, he or she may be at risk of foreclosure.

A practice called “reverse competition” may also be happening. Reverse competition happens in a situation where the companies involved do not have an incentive to find the lowest price because the costs are being born by the borrower. This state of affairs tends to lead to higher insurance premiums.

The borrower, as a result, often pays more for this force placed insurance than if the borrower went out and found his or her own insurance.

The NAIC reports that in May 2012, a hearing took place on force placed insurance at the New York State Department of Financial Services. Both New York State’s Governor Andrew M. Cuomo and Benjamin M. Lawsky, the Superintendent of Financial Services said, after the hearing, that force placed insurance premiums must be lowered.

Lawsky said in a press release, “Our hearings suggest a lack of competition, high prices and low loss ratios, all of which hurt homeowners.”

Many lenders have been accused of requiring unfair forced placed insurance policies on their property owners. These include AmeriHome Mortgage, Arrest Bank, Dovenmuehle Mortgage, Freedoms Mortgage Corp., Lakeview Loan Servicing, LoanDepot, Matrix Financial Corp., Pingora Loan Servicing, Provident Funding, Quicken Loans, Residential Mortgage and Shellpoint Mortgage Servicing.

If you have a loan from any of these lenders and believe you may have a force placed insurance policy, you many benefit from speaking with an experienced attorney.