Home and businesses pay property insurance to protect against financial losses related to damage to personal items and liability from injuries that occur on property.
Homeowners are required to maintain adequate property, or homeowners, insurance. If the homeowner allows the property to lapse, the loan servicer may take matters into its own hands to protect the property.
Force-placed insurance, also called lender-placed insurance, is insurance placed on the home by the mortgage lender. The lender then adds the cost of the insurance on the mortgage payments.
There are specific instances where a lender will add insurance onto a homeowner’s property:
- The lender has not received proof of homeowner’s insurance coverage from the owner
- The homeowner does not have coverage on the home because it was cancelled or was never purchased
- The type of homeowner’s policy the owner obtained does not meet the lender’s requirements
Yes. It increases monthly mortgage payments that can push a homeowner who is having difficulty making payments closer to or into foreclosure.
No. The forced homeowner coverage provides less coverage than a policy an owner obtains on their own. This is because it covers different risks that a normal policy. Typically, force-placed insurance will not provide coverage for damage to personal property or liability.
Yes, whenever a lender places a homeowner on their forced insurance policy, they must notify the homeowner. The notice must tell the homeowner:
- The lender does not have proof of insurance
- There is an obligation for the homeowner to have insurance
- How to prove there is homeowner insurance coverage on the home
- The lender will place insurance on the property if there is no coverage by a specific time
Yes. Forced-placed insurance is a complex issue to resolve especially when you have insurance already on the property. Contact a real estate lawyer to understand your legal options.