If you are reading this post and don’t know what “force placed insurance” is, we are happy for you. Unfortunately, millions of Americans know the term all too well.
When you finance the purchase of a home, your lender requires the home be insured. If your home is destroyed by a flood, fire or earthquake, the bank wants to be sure it will still get paid. We have no problem with that. A few unscrupulous lenders and insurance companies, however, have been figured out a way to profit from struggling homeowners.
Read the fine print of your mortgage. We are 99.9% sure you will find a provision that says if you miss an insurance payment and your insurance lapses, the bank can purchase replacement insurance for you. Since many borrowers escrow their property taxes and insurance, the bank collects these monies each month as part of your mortgage payment. That means missing a mortgage payment can also cause your insurance to lapse.
Again, no problem. Simply because you can’t pay doesn’t mean the bank can’t be protected. When the borrower allows insurance to lapse or can’t make payments, the bank gains the opportunity to insure the property. If done right, that action can protect both the bank and the borrower.
The banks might like you to believe that they are white knights but just ask anyone who has force placed insurance. Their stories are often best described as nightmares.
We routinely here of premiums skyrocketing by 500% or more, of coverage that only benefits the bank and of policies that didn’t even need to be purchased.
When a borrower defaults, it’s usually because of financial problems. Perhaps the homeowner got ill or lost her job. Often, the situation is just temporary. Instead of helping struggling homeowners, some banks like to kick people when they are down. To take advantage of homeowners who are most vulnerable.
What should come as no shock to anyone, some banks were even getting kickbacks from the insurance companies. Everyone making money off the struggling homeowner. Often, the homeowner gets so overwhelmed with force placed insurance charges, default interest, fees and penalties that they can never dig out. For them, the American dream often ends at a sheriff’s sale when their dream is auctioned away.
One would think that banks would want to keep homeowners in their home. That may sound logical but things don’t work that way.
In the typical home mortgage, the bank makes it money from commissions. You purchase a home; they provide a mortgage. Once the closing takes place, the loan is packaged into a security and sold. The bank makes it money from a commission on the sale of your loan.
The banks often retain the rights to service the loans they write giving them a second source of income. Even though the loan may now be owned by a Residential Mortgage Backed Security trust, borrowers still send payments to the bank.
When things are going smoothly, the bank doesn’t make much money. Their only duty is to process your payment and make sure the taxes and insurance get paid. In a default, they have more to do and hence charge more money.
When loans were not insured by the FHA or Fannie Mae or Freddie Mac and when banks kept the loans they wrote, the banks had an incentive to keep you in your home. They had an incentive to help you through rough patches.
No more. Now, they view defaults as a way to make money.
In this post, we will examine a case brought by homeowners in California. Depending on the bank or company servicing your loan and depending on where you are, the story line may be a bit different. We are beginning with this story detailing how homeowners fought back and won in California.
The heroine of our story is Michelle Wahl of Santa Cruz. Located in the high tech area of California, Santa Cruz has some of the most expensive housing in the nation. Ms. Wahl’s home was in Santa Cruz County.
In January 2006, Wahl missed a premium payment on her insurance. When she missed her payment on January 12th, her insurance company (Farmers) mailed her a notice on January 13th. A copy of the notice was sent to her lender / servicer, EMC Mortgage Corporation.
EMC immediately secured an insurance policy on the home. This so-called force placed insurance was issued by American Specialty Insurance Company (ASIC). Insurance giant Assurant owns ASIC and dominates the force placed insurance market.
After the missed premium payment and issuance of a force placed insurance policy, ASIC wrote to Wahl to tell her of the new policy. The letter said,
“We have incurred expenses in placing this insurance binder and policy on your structure. Such expenses are recoverable by us as stated on your loan documents.
“This policy only insurers the structure. It does not protect any personal property nor does it protect you from liability against accidents that may occur on your property. For example, if your house were burglarized, this policy would not cover any loss or replacement of the stolen property.”
The ASIC force placed insurance cost $4052 per year. Her Farmers policy was only $2457. More importantly, the Farmers policy provided much better coverage.
Unlike many homeowners who can never catch up on their bills, Ms. Wahl was able to keep her home and catch up in July of 2007. At that time she was able to get insurance once again from Farmers.
If you are just thinking that ASIC provided her crappy insurance at a ridiculous price you are wrong. Many states have laws that protect homeowners that miss a payment. In California, there are specific notices that must be sent and coverage usually continues for at least 60 days and sometimes 130 after a default.
In Wahl’s case, that means she had duplicate coverage for months. There was no need to immediately obtain replacement insurance. In Wahl’s case, the force placed policy was even retroactive even though the house hadn’t burned down or was destroyed by floods.
There’s more to this story!
Lenders typically contract with force placed insurance companies to monitor insurance policies. Companies like ASIC typically offer this “service” to lenders free of charge.
Not only don’t the lenders or servicers pay for the monitoring, often they get a kickback from the insurance company.
It goes without saying that there is no bidding or shopping around for a better price.
Wahl filed her lawsuit in 2008. She named ASIC as the defendant. It was filed as a class action meaning it was brought on behalf of all California homeowners who had claims similar to hers.
Homeowners Can’t Afford to Sue Banks
Suing a bank, servicer or insurance company is expensive. This case cost $4.9 million. Individual homeowners could never afford such fees and even if they could, who would spend millions of dollars to fight over a couple thousand dollars?
Banks know this and know they will rarely be sued. A class action, however, filed by the right law firm can really level the playing field.
In 2011, Wahl’s case settled. Homeowners were awarded millions of dollars in relief. ASIC also agreed to cut its rates for force placed insurance.
Wahl is just one of many lawsuits either targeting dirty insurance tactics or the lenders themselves for taking kickbacks. The market has cleaned up somewhat but once again we are seeing new abuses.
MahanyLaw Investigates Force Placed Insurance Scams
History always seems to repeat itself and once again we are seeing new schemes and scams involving force placed insurance. For an individual homeowner, it is almost impossible to take on a big bank or insurance company.
We are currently considering new class action claims for homeowners who feel they were harmed by these policies. We are specifically investigating possible claims against CitiMortgage (Citibank, Citi) and Ocwen.
If you have been the recipient of force placed insurance over the last 24 months, please contact us at the email below. We regret that we cannot accept phone calls.*
MahanyLaw is a full service boutique law firm that concentrates in lender liability claims AGAINST banks. We sue banks, loan servicers and insurance companies. Unfortunately, we cannot accept individual cases but do consider class cases.
The Fine Print
* A note about contacting us. We receive dozens of phone calls each day from people asking “How do I sue my bank?,” “Can I sue my bank”, Can you represent me in a foreclosure action?, etc. Unfortunately, we don’t take individual cases regarding home mortgages, can’t provide legal advice to non-clients and can’t process every call. The only way to contact us if you have a possible force placed insurance claim is by email.
Every email will be reviewed by a lawyer. Please tell us when you received force placed insurance, the name of the insurance company (if you know it), your lender or mortgage servicers (Bank of America, CitiMortgage, Ocwen, etc.) and where your home is located. If you have received force placed insurance in the last two years we will review your email.
Disclosure: Contacting us by email or through a web form does not create a lawyer – client relationship.