Q: Our mortgage was set up so that we directly pay the property taxes and insurance. Our insurance renewal bill went way up, and we did not have the funds to pay it, so it lapsed. Our lender must have found out because they bought an even more expensive policy and are tacking the cost onto our monthly mortgage bill. Can they do this? — Cathy
A: Yes, the terms of your mortgage allow this practice.
When you took out your loan, you agreed to maintain insurance on your property. You also agreed to let your lender purchase a policy if you do not and have you pay for it. This type of homeowner’s insurance policy is called “force-placed” insurance.
Your mortgage lender is not overly concerned with the cost and may even have a business relationship with the insurer, so force-placed policies can be much more expensive than a policy for which the homeowners would shop around.
Worse yet, the coverage under this policy favors the lender but provides less coverage for the homeowner. Too many homeowners only find out about this lack of coverage after something happens to their home and try to make a claim.
Because it is more expensive and protects you less, you should start shopping for a better policy.
Fortunately, you have the right to replace the force-placed insurance with a policy your find which will lower your monthly bill and protect you better.
When you set up your loan, your lender was notified of the coverage and would have been told when you let it lapse. This can happen to people who already pay a monthly portion into escrow with their lender as part of their monthly payments.
If a lender does not get a proper notice each year from the insurance carrier or misplaces it, they will notify you of the problem by mail.
In my practice, I have learned that many people do not open their mail, especially in trying times, and even when they do, they often do not recognize its importance. This is understandable with the amount of junk mail, ads, privacy policy updates, and the like that come in the post.
Always open and carefully review everything you get from your lender and other companies you deal with.
