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  #1  
Old 05-14-2009, 11:11 AM
journalist journalist is offline
 
Join Date: May 2009
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Default Forced Place Insurance-Are they breaking the law?

Mortgage Experts - Can you help me understand if a bank resi lender also has a mortgage insurance company and they automaticly place insurance on the borrowers escrow account - if their homeowner insurance laspes...

Is that in violation of RESPA or other mortgage rules?

your thoughts,
Teri Buhl
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Huff Post Investigative Unit
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Old 05-14-2009, 12:19 PM
Howard Klahr's Avatar
Howard Klahr Howard Klahr is offline
 
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The terms of most mortgages, residential or commercial, include a requirement for the borrower to maintain insurance coverage and submit evidence of the required coverage. Due to the financial interest in the property by the lender, the lender is also frequently named as an additional insured.

In the event the borrower does not comply and provide evidence of proper coverage, most mortgages allow the lender to place forced coverage and pass the cost along to the borrower. This is often very expensive as compared to coverage available as if the borrower complied with the requirement on their own.

If you are researching this issue for a story, it might be helpful to get copies of mortgages from a few lenders and see how the requirement is worded. Hope this helped.
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Old 05-14-2009, 12:39 PM
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Ok what if the borrower then goes out and gets the insurance - lets say a month forced insurance has been (three times the rate) is placed on their escrow account.
Does the lender/insurer have to take that cost off their monthly payment?
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Old 05-14-2009, 12:50 PM
Howard Klahr's Avatar
Howard Klahr Howard Klahr is offline
 
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You are looking for answers to legal questions from a group of real estate practitioners. My response is qualified by the fact that I am not a lawyer and all details need to be confirmed with an attorney in the jurisdiction that you are interested.

Typically, once you provide proof of coverage as required under the terms of the mortgage, the lender will cancel the forced placed coverage. The borrower will however usually be responsible for the cost of forced place insurance from the point of a lapse in coverage until the issue has been resolved.

It appears that one of your objections to forced place coverage is the high cost. The issue would not have existed unless the borrower did not perform under therms of the mortgage with regard to maintaining insurance coverage and providing evidence of such. Forced placed coverage is not and is not intended to be an economical option.
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Old 05-14-2009, 01:04 PM
jeanwillick jeanwillick is offline
 
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In addition to looking at other people's mortgage contracts, I would suggest that you call another bank or banks and see what their policy is for insuring mortgaged properties.
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Old 05-14-2009, 01:17 PM
Walter Kirk Walter Kirk is offline
 
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RESPA only covers the settlement of a purchase, not the servicing of the loan after the settlement. I have heard horror stories about mortgage servicers letting policys lapse or demanding higher policy limits and then obtaining high priced insurance from companies that they control.

Appraisers don't normally get involved in insurance questions. I would suggest contacting independent insurance agents who loose clients to this manipulation.
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