Fraud is prevalent in the mortgage industry.
One type of fraud that’s just coming to light is “force-placed insurance”. The Consumer Financial Protection Bureau (CFPB) will be issuing mortgage servicing rules this year that will impose new limits on these insurance policies according to CFPB Director Richard Cordray in a speech to the National Association of Attorneys General annual meeting in Washington, D.C., Tuesday, March 6, 2012.
What is force-placed insurance? Force-placed insurance is an insurance policy taken out by the homeowner’s lender. The insurance is exactly what it sounds like – insurance you are forced to buy, and you may not know you have this insurance.
If the homeowner stops making payments on their mortgage, the lender can purchase insurance on your property and charge you for the insurance. This insurance costs a great deal more, as much as 10 times higher than a regular policy. The insurance protects the lender and is payable to the lender – not the homeowner. These force-placed insurance companies strictly deal with high-risk policies are separate entities from regular insurance companies.
Typically, when the homeowner misses mortgage payments, the lender will stop forwarding insurance payments (which have been held in escrow) to your insurance company. The lender buys the force-placed insurance and pays from your escrow account. Because this force-placed insurance costs more, the homeowner is driven into foreclosure more quickly. The lender doesn’t tell you they have changed your insurance.
What has also been uncovered – some force-placed insurance companies have back-dated the insurance up to nine months and then charged the homeowner for insurance they didn’t have. Homeowner’s have often wondered why unexplained charges have shown up on their original mortgage when they go into foreclosure.
Worse – some of these insurance companies have been known to give kickbacks to the lender thereby incentivizing delinquencies. The interests of the lender and the insurance company are aligned against the homeowner. The lenders, in many cases are reimbursed for the insurance they purchase on behalf of the homeowner from the proceeds of foreclosure sales – foreclosures they helped to bring about.
Until recently, one such force-placed insurance company was owned by one of the top ten major banks.
Other major banks have contracted with insurance companies and received a commission from the policies they placed on homes underlying their mortgages. There’s a class-action suit now, alleging one of the top ten major banks and an insurance company inflated the costs of force-placed insurance policies and the insurance company paid commissions to bank. The commissions, say the plaintiffs are nothing but kickbacks.
You may want to check with your lender concerning your insurance and get a detailed explanation of your escrow account.
Keith A. Gantenbein, Jr. is a Colorado foreclosure defense attorney located in Denver and servicing all of Colorado. He also handles bankruptcies, mortgage negotiations, lender liability, real estate, civil litigation, contracts and landlord/tenant. If you think you will be facing foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you.
This article is not intended as legal advice. The opinions of this article are solely the opinion of the author.