Forced Placed Insurance During Loan Modification Process

We have been blogging about the many problems homeowners are having as a result of servicers failing to timely process loan modification requests.  In talking with homeowners, we are learning that servicers have been charging borrowers for hazard or property insurance during the loan modification process. 

When a servicer or lender purchases property insurance for a borrower it is called "forced placed insurance."  Our research has revealed that there are three major problems with forced placed insurance taken out by servicers and lenders.  First, borrowers are reporting that servicers are force placing insurance even though the homeowner has adequate in-force homeowners insurance.  Second, the forced placed insurance purchased by lenders is taken out for limits which exceed the amount of the mortgage debt, a violation of law in many states.  Finally, servicers are purchasing over priced forced placed insurance coverage -- usually 2 to 3 times more than the cost of coverage typically obtained by borrowers. Servicers will often purchase forced placed insurance policies from affiliated companies who get a commission from the sale of the insurance.

How does this hurt the borrower?  The servicer charges the forced place insurance to the borrower.  In the end, the borrower pays for the over priced forced placed insurance purchased by the lender's servicer.  We have heard complaints that the amount of the forced placed insurance has drastically increased a borrower's monthly payment to a point where the borrower can no longer pay his full monthly payment, resulting in foreclosure.

Borrowers cannot ignore forced placed insurance notices.  The lender has a right to require insurance on the property to protect its security interest, however, it cannot purchase more coverage that is required by law and cannot gouge the borrower with non-competitive inflated insurance premiums.

We are reviewing borrower documentation for forced placed insurance problems. If you suspect a problem, you can fill out a contact form or call us toll free at 1-877-892-5620.