Force-placed insurance, also known as lender-placed or creditor-placed insurance, is an insurance policy chosen by the bank or creditor as a result of the homeowner’s insurance being out-of-date or insufficient. Borrowers who default on their mortgage payments often forget that insurance payments may be factored into their escrow, thus resulting in nonpayment of the insurance. These forced insurance policies are often more expensive, and the burden of paying for this coverage chosen by the lender falls directly on the borrower.
It may sound sly, but many mortgages allow the lender to purchase home insurance and “force-place” it on the owner. Recently, however, this practice is the subject of much media scrutiny. Without a Miami foreclosure attorney by your side, you could end up paying much more than necessary.
The unethical side of force-placed insurance plans
Primarily, the focus has been on the rates given to lender-placed insurance policies. This examines the excess profits being made by lenders when purchasing these policies. Not only are these lender-placed insurance premiums significantly higher than insurance the borrower could have purchased on their own, but they usually cover much less. For example, a force-placed policy will generally fail to cover personal items or owner liability. Furthermore, if a borrower does not pay the premium for their lender-placed insurance policy, they could be at risk of foreclosure.
Force-placed insurance is also viewed as a questionable practice because it represents textbook “reverse competition.” Since the lender is the one selecting the coverage provider and amount, and the consumer is obligated to pay the cost of the coverage that their lender chooses, the lender is not motivated to select the lowest price for coverage since the cost is not born on them. Normally, competitive forces drive down costs for consumers, though in this case competition is nonexistent. The lender, in this instance, is motivated to select coverage from an insurer by looking out for their own interest, rather than that of the person paying the premium; the borrower.
Florida and force-placed insurance plans
If you have been involved in some sort of force-placed insurance situation, you are not alone. The Sunshine State leads the United States in this issue, boasting 35 percent of the countrywide FPI premiums.
If you have questions regarding how you can do something about your lender-placed insurance premium, or prevent it from happening in the future, Graham Legal invites you to set up an initial consultation with an experienced Miami foreclosure attorney today.