What Is Force-Placed Insurance:
Force-placed insurance, also known as lender-placed insurance is a growing
business practice where a lender, bank, or loan service provider (hereinafter
Mortgagee) obtains insurance on a real property that it has an interest in.
Often times the Mortgagee is allowed to force-place insurance when (1) there
is no insurance on the real property, (2) the Mortgagee has not received
proof of insurance coverage, or (3) the coverage is insufficient to satisfy
what the Mortgagee requires.
Furthermore, the Mortgagee may also force-place flood insurance on real
property in flood zones that they believe do not have enough flood insurance
to meet the legal minimum required to protect the property.
The force-placed insurance business practice is legal because in theory it
allows the Mortgagee to protect its financial interest in case the borrower
fails to obtain adequate insurance and a catastrophe takes place.
Unfortunately, the force-placed insurance practice is easy to abuse. Some
Mortgagees have capitalized by force-placing insurance when insurance was
not required and/or obtaining insurance for unnecessary periods
retroactively. Often times the Mortgagee obtains kickbacks from these
insurers. This is a corporate crime that has been on the rise since 2008.
Hyperinflated Insurance Costs:
Force-placed insurance is usually a lot more expensive than what you can
obtain by shopping for an insurance policy yourself. In addition, the force-
placed insurance policy may have limited coverage. For example, these
policies generally do not cover personal items or owner liability.
There are only a handful of force-placed insurers. The largest ones consist
of Assurant, Inc., QBE, Balboa, and American Modern. Some of these large
insurers are parent corporations of smaller force-placed insurers
(corporations within corporations).
What To Do:
If you feel you are being targeted by an unwarranted force-placed insurance
practice, you need to consult a lawyer immediately.