Lender Force Placed Insurance - BAD!!!
By Pamela Stewart, Attorney at Law on Oct 31, 2007 in Mortgages, Texas
Force placed insurance, sometimes referred to as lender placed insurance, is bad, VERY BAD, for the Debtor/Borrower! It is very costly and does not protect you, the borrower. Many borrowers believe this coverage will cover their contents. Wrong! Further, unless the mortgage documents provide otherwise, the borrower does not have the right to cancel the policy - only the lender can cancel it. Your mortgage lender has the right to protect its collateral from loss. If the property is underinsured, your mortgage lender has the right to purchase lender placed insurance on your property. Pursuant to Texas law, the lender is not required to purchase the force placed insurance unless the mortgage loan documents require it to do so. Typically, this type of insurance is “bought” by the lender when a borrower’s homeowner’s insurance policy lapses or the borrower changes insurance companies and forgets to let the lender/servicer know about the new company. The lender cannot “pick up your payments” on your existing policy.
Also, lender placed insurance is much more expensive than insurance you would obtain on your own. The lender is not under an obligation to find the cheapest rates for you (the borrower). Further,the servicer’s duties do not include finding the best terms for you or the strongest insurance company. The lender/servicer is not required to protect the content’s of your home or persons on your property (in case someone was injured).
Allegedly, the premiums are higher for this type of insurance because the insurance industry believes these types of properties are at a significantly higher risk of loss if the borrower has chosen not to insure his property. The increased cost of insurance coverage is the responsibility of the borrower. Remember, amounts disbursed by the lender for force placed insurance or lender placed insurance become an additional debt to you.
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