Lender placed insurance in California is a practice that has been making millions of dollars for insurance companies and for the banks, and it’s all been funded by homeowners.

Lender placed insurance allows the bank that holds your mortgage to buy property insurance for you if your policy lapses due to non-payment.

Marketed as a consumer protection, lender placed insurance guarantees there is no lapse in coverage in case an unforeseen event damages your home.

The plan makes sense because homeowners don’t want to pay a mortgage on a home that is no longer safe to live in, nor do homeowners want to walk away from a mortgage. The bank wants homeowners to avoid that situation as well.

Lender Placed Insurance in California Wrought with Problems

Consumer advocates contend that lender placed insurance in California is legal, but is mishandled.

When a bank purchases a homeowners policy on behalf of the mortgage holder, the policy can be as much as 10 times more expensive than what the homeowner could purchase on his own.

Both banks and companies that sell lender placed insurance defend this price discrepancy because they must insure all homes. They are not able to assess the homes that are at the least risk of claims to price them accordingly.

In spite of paying more for lender placed insurance than for a policy they could obtain on their own, lender placed insurance in California does not carry the same level of coverage.

Most lender placed policies will not pay for lost possessions or the cost of staying somewhere else while a damaged home is fixed.

Over the years, lender placed insurance in California has been an industry with allegations that banks receive kickbacks, often called commissions, from the insurance companies that sell such insurance.

While tighter regulations have cut back on these practices, the past indiscretions have created an environment less than forgiving when a homeowner misses an insurance payment.

Consumers Winning Lawsuits

Homeowners have filed and won lawsuits against banks that have gouged them for lender placed homeowners insurance.

Nearly 780,000 homeowners won a $300 million settlement from J.P. Morgan and Assurant. Affected homeowners will receive a maximum refund of 12.5 percent of the lender placed premiums they paid.

In another case, Assurant had partnered with Citigroup and the two agreed to a $110 million settlement earlier this year.

Both settlements restrict the banks from accepting commissions on force-placed insurance for six years.

Both Citigroup and J.P. Morgan have issued statements that they already no longer accept such commissions as part of their policies.

If you have been required to pay force-placed homeowners insurance in California, you could benefit from a class action lawsuit.