Insurance packing refers to a fraudulent practice associated with home loan and home equity arrangements. In an insurance packing scheme, a lender adds or "packs" an insurance policy clause into the borrower’s home equity mortgage contract. This is done in such a way that the borrower usually doesn’t notice the terms until they start feeling the effects of the insurance clause.
The credit insurance generally costs additional money and is often not a part of the original contract negotiation terms. In most cases, the insurance clause is intended to benefit only the lender. It does this by insuring them on all or most of the loan funds in the instance of default.
In many instances, the borrower would not have agreed to the loan arrangement if they were aware of such a clause in the contract. However, insurance packing can be illegal and may constitute a legal violation based on fraud, misrepresentation, or other legal theories.
You can avoid being a victim of insurance packing by:
- Reading the fine print and all terms in the contract
- Being sensitive to any unnecessary pressure, intimidation, or misrepresentation on the part of the loan representative
- Hiring a lawyer for guidance during negotiations
Also, you’ll want to check the background and credentials of the lenders you’re working with. You should do this both for the individual representative as well as the company they may be working for. Lastly, don’t be afraid to ask any questions about issues that arise during the lending transaction.
Legal penalties for insurance packing violations are often based on contract laws. Remedies may include:
- Voiding the contract entirely
- Rewriting the contract
- Legal monetary damages for losses caused by the violation
These remedies and consequences will depend mostly on the facts involved in the packing scam. Criminal fraud punishments can also apply in some cases.
Insurance packing can sometimes put the lender in a very disadvantaged position. It can lead to serious financial losses and often involves dishonest negotiating practices. You may need to hire a mortgage lawyer if you need help filing a claim for an insurance packing violation. Your attorney can provide you with the necessary representation and guidance during litigation.