What Is Force-Placed Insurance?

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 type of insurance is called "force-placed" or "lender-placed" insurance. The servicer may then charge you for the cost of the force-placed insurance.

Circumstances When 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 the homeowner did not buy a policy or because the insurer canceled the policy when the borrower didn't pay the renewal premium.

• The lender hasn't received proof of insurance coverage—even though the homeowner might have coverage in place.

• There is a homeowners' insurance policy in place, but the amount of coverage, deductible, or type of coverage doesn't meet the lender’s requirements.

Cost and Coverage of Force-Placed Insurance

Force-placed insurance is usually expensive, which can hinder a borrower who is already having difficulty making his or her monthly payment from bringing the loan current. (The servicer typically increases the borrower's monthly payment to cover the cost of the insurance.)

Sometimes, at-risk homeowners go into foreclosure when they can't get caught up on the amounts owed. (If you're having trouble making your mortgage payments, you might qualify for a workout option and be able to avoid foreclosure.)

Force-placed insurance usually provides less coverage than a homeowners' policy because it covers different risks than a typical homeowners' policy. For example, a force-placed hazard insurance policy usually won't provide coverage for the borrower’s personal property, like 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-Placed Insurance

Federal law requires a loan servicer to send notice to the homeowner at least 45 days before it buys force-placed insurance. The servicer must then send a second notice (a reminder notice) no earlier than 30 days after the first notice and at least 15 days before charging the borrower for force-placed insurance coverage. (12 C.F.R. § 1024.37). (To learn more, see Federal Laws That Cover Force-Placed (or Lender-Placed) Insurance.)

Force-Placed Insurance Refunds

If the loan servicer receives evidence of coverage, the servicer has to cancel the force-placed coverage and refund any duplicate coverage costs. (12 C.F.R. § 1024.37).

What to Do If Your Servicer Wrongfully Buys Force-Place Insurance

Servicers sometimes improperly buy force-placed insurance for a borrower’s home even when the borrower already has an insurance policy in effect. If your servicer wrongfully buys force-placed insurance for your home, you may send the servicer what’s called a “notice of error.”

Under federal law, if you send your servicer a notice of error—basically, a letter—letting the servicer know that it made a mistake on your account, the servicer must fix the mistake within a specific time period. (Learn more about how to resolve common servicer errors.)

Talk to an Attorney

If you send your servicer a notice of error, but the servicer doesn’t respond—or if you're facing an imminent foreclosure—consider talking to an attorney. (If your loan servicer force-placed insurance coverage while you already had other coverage in place, and has since started a foreclosure action, you might want to challenge the duplicate charges in the foreclosure. Learn more in Challenging Late & Other Fees in Foreclosure.)

You may also lodge a complaint with the Consumer Financial Protection Bureau (CFPB). The CFPB will send your complaint to the servicer and try to get a response, normally within 15 days.