What Is Force-Placed Insurance?

The terms of most mortgages and deeds of trust require homeowners to maintain adequate homeowners' insurance on a secured property so that the lender's interest is protected in case of fire or another casualty. If you let this insurance coverage lapse, the loan servicer can order 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 lender-placed insurance.

When Can a Servicer Charge a Borrower for Force-Placed Insurance?

The following are a few examples of when a servicer might place hazard insurance on your home:

• You don't have a homeowners' policy in place, either because you didn't buy one or because the insurer canceled your policy when you didn't pay the renewal premium.

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

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

Lender-placed insurance is usually expensive, and the servicer typically increases the borrower's monthly payment to cover the insurance cost. This added cost can hinder a borrower who's already having difficulty making the monthly payment from bringing the loan current.

What Does Lender-Placed Insurance Cover?

Lender-placed insurance usually offers less coverage than a homeowners' policy because it covers different risks than a typical policy. For example, a lender-placed hazard insurance policy usually won't cover the borrower's personal property, like clothing or household items.

Lender-placed insurance also doesn't have liability coverage for instances where the homeowner is responsible for damages or injuries to others.

When Must the Borrower Be Provided With a Force-Placed Insurance Notice?

Federal law requires a loan servicer to send notice to the homeowner at least 45 days before it buys lender-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 lender-placed insurance coverage. (12 C.F.R. § 1024.37).

How Do I Get Out of Force-Placed Insurance?

Servicers sometimes improperly buy lender-placed insurance for a home, even when the borrower already has an insurance policy in effect. If your servicer wrongfully buys lender-placed insurance for your home, you may send the servicer a "notice of error." Under federal law, if you send your servicer a notice of error letting the servicer know that it made a mistake on your account, the servicer must fix it by a specific deadline, generally within 30 days.

If you inadvertently let your insurance policy lapse, let your servicer know as soon as you reinstate it. You'll have to provide proof (documentation) to the servicer showing adequate coverage under the new policy. Send your proof of insurance via certified mail and secure email, if available. After you provide this information to the servicer, you should receive a letter of cancellation that the force-placed policy is no longer in place.

Can I Get a Refund on Force-Placed Insurance?

If the servicer receives evidence of coverage, it has to cancel the lender-placed coverage and refund any duplicate coverage costs within 15 days of getting the proof of insurance. (12 C.F.R. § 1024.37).

Talk to an Attorney

If you send your servicer a notice of error, but they don't respond, or if you're facing imminent foreclosure, consider talking to a foreclosure attorney. If your servicer buys 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.

You may also complain to 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. Be aware that sending a notice of error or filing a complaint with the CFPB is highly unlikely to stop foreclosure proceedings. You'll most likely need an attorney's assistance to halt a foreclosure.