Many people come into my office with policies that their own mortgage company bought. Most don’t see what the big deal is and never even thought about changing it. These are bad, bad policies that no homeowner should carry unless absolutely faced with no other choice. Essentially, if you have a mortgage you have to have insurance. Some people fail to obtain insurance either because they are so far behind on their mortgage payments they can’t afford it or some just miss a deadline or a payment or just forget to get insurance. In this situation your mortgage company will buy insurance for itself and then force the payment onto the homeowner. The downsides are vast. First, they are expensive, usually much more than an average policy. Second, the coverage is usually minimal. Most forced placed policies are bought with just enough insurance coverage to cover the mortgage amount. This means if the house is worth $200,000 but the mortgage is $100,000 they will usually only insure the $100,000 because they just want their money back if the house is destroyed and the homeowner will never have enough money to actually fix the house. Third, most if not all of these policies do not insure the homeowner but the bank instead. This means that any payments made go to the bank and not the homeowner because they are not the “insured” that bought the policy. This also means that homeowners may have limited abilities to enforce the insurance if it is denied. Finally, there is case law that says even if a homeowner has to sue to enforce the insurance policy they may not even get the benefit of their legal fees paid. We have written about the positive law that has come down for homeowners and when they beat their insurance company that company has to pay their legal fees and costs. That statute only applies to protect an “insured” on a policy. As stated above, the bank is the insured, not the homeowner. Some Courts have said the homeowner is not entitled to the protections of the law. Long story short, if you are stuck with a forced placed policy please get away as fast as you can, they are not insurance for you and only benefit the banks interest.
May 16, 2017 by Morgan Barfield