A forced placed insurance lawsuit investigation is underway for a handful of mortgage lenders that may be engaging in improper homeowners insurance practices.

Force placed insurance is a type of homeowners insurance required by a lender to protect their investment in the homeowner’s real estate, in the event the person’s own chosen home insurance policy defaults or doesn’t meet the lender’s minimum requirements.

The forced placed insurance lawsuit investigation was instituted not because the practice of requiring insurance to remain in effect for a home is illegal, but because of its potential for abuse. In principle, forced placed insurance is a sensible requirement to protect the lender’s interest in a property.

In reality, however, the forced placed insurance lawsuit investigation started because of a growing trend of mortgage companies getting into financial partnerships with insurance companies for the purpose of getting a portion of the funds generated by the forced place policy in the form of a kickback.

Abuses of Forced Placed Insurance

It is a somewhat subjective determination on the part of a lender to say that a chosen policy of a homeowner is inadequate—that is, unless the guidelines for adequacy are fully outlined and part of the property purchase contract at signing. When they are not, it becomes potentially abusive for the lender to require additional forced placed insurance.

This forced placed insurance often costs the homeowner more, and it frequently doesn’t cover the contents of the house which are personal and valuable to the owner in question.

If a mortgage lender has an agreement to use one insurance company exclusively for this type of investment coverage, the lender may then get some of the higher premium paid by the property owner kicked backed to them. This creates a profit incentive for further identification of insurance inadequacies across a financial institution’s property portfolio.

The Consumer Financial Protection Bureau (CFPB) reviewed the potential for consumer abuses with forced placed insurance in 2013 and changed some rules accordingly. These changes required lending companies to have documented, demonstrable reasons for requiring an additional forced insurance policy on a particular home.

The rule changes also made lenders accountable for providing significant notice to property owners in the event of chosen insurance default or failure to meet requirements. Notice given needed to have options for upgrading or bringing chosen insurance out of a lapsed state.

Despite these changes, there are still lenders that may be engaging in behavior that is against state and federal law. State laws usually have statutes that outlaw unfair competition in a given trade. The federal Racketeer Influenced and Corrupt Organizations Act of 1970 may have application in certain instances.

The forced placed insurance lawsuit investigation has been particularly scrutinizing the following lenders:

• AmeriHome Mortgage
• Arrest Bank
• Caliber Homes
• Capital One
• Cenlar
• Ditech
• Dovenmuehle Mortgage
• Fay Servicing
• Fifth Third
• Flagstar
• Freedoms Mortgage Corp.
• Lakeview Loan Servicing
• Loan Care
• LoanDepot
• Matrix Financial Corp.
• Pingora Loan Servicing
• Provident Funding
• Quicken Loans
• Residential Mortgage
• Shellpoint Mortgage Servicing

If you are a homeowner whose home loan is held with one of these lenders and you have been forced to pay premiums on a force placed insurance policy in the last five years, you may qualify to participate in this forced placed insurance lawsuit investigation.