Mortgages and deeds of trust require homeowners to maintain adequate insurance on the property so that the lender’s interest is protected in case of fire or other casualty. If you let this hazard insurance coverage lapse, the loan servicer can obtain insurance coverage at your expense. This is called force-placed or lender-placed insurance. Typically the servicer adds the cost of the force-placed insurance to your loan payment.
(Learn about other mortgage and foreclosure terms in Glossary of Foreclosure Terms.)
Circumstances Where the Lender Might Force-Place Insurance
The following are a few examples of when a loan servicer might force-place insurance on a homeowner’s property:
- The homeowner does not have a homeowners policy, either because he or she did not purchase a policy or because the policy was cancelled after the renewal premium was not paid.
- The lender has not received proof of insurance coverage (even though the homeowner may have coverage in place.)
- There is a homeowners insurance policy in place, but the amount of coverage, deductible, or type of coverage does not meet the lender’s requirements.
Cost and Coverage of Force-Placed Insurance
Force-place insurance is expensive. This can hinder a borrower who is already having difficulty making his or her monthly payment from bringing the loan current since it often results in a large increase in the monthly payments to cover the negative escrow balance. Sometimes it may even push an at-risk homeowner into foreclosure. (If you are having trouble making your mortgage payments, there are workout options available to help you avoid foreclosure.)
Force-place insurance usually provides less coverage than a homeowners policy. This is because it covers different risks than a typical homeowners policy. For example, a force-placed hazard insurance policy usually will not provide coverage for the borrower’s personal property, such as clothing or household items. Force-placed insurance also does not provide liability coverage for instances where the homeowner is responsible for damage or injuries to others.
Notice Requirements for Force-Place Insurance
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that the loan servicer must send notice to the homeowner before force-place insurance can be ordered. The notice must inform the homeowner that:
- there is an obligation to maintain hazard insurance
- that the servicer does not have proof of insurance coverage
- the procedures for providing evidence of existing coverage, and
- if the borrower does not prove coverage, the servicer may force place the insurance.
The loan servicer must also send a second written notice to the homeowner at least 30 days after mailing the first notice. If the homeowner does not provide proof of insurance coverage within 15 days after the second notice, the servicer can force-place the insurance coverage.
How to Get Rid of Force-Place Insurance
If the loan servicer receives evidence of coverage, the servicer must then cancel the force-placed coverage and refund any duplicate coverage costs.
If your loan servicer force-placed insurance coverage while you already had other coverage in place, and has since started a foreclosure action, you can challenge the duplicate charges in the foreclosure. Learn more in Challenging Late & Other Fees in Foreclosure.