If you are a homeowner with a mortgage, you are obligated to maintain insurance on your home. If you allow your policy to lapse or if you reduce your insurance so you are not sufficiently covered, your mortgage lender may obtain insurance on you. The insurance your mortgage lender has the right to obtain is referred to as “forced place” insurance and often the cost of this insurance is significantly more than what it would cost to purchase insurance for yourself.
If you have let your insurance lapse and you discover that you have forced place insurance, it is very important that you take action right away- otherwise, you could end up wasting thousands or even tens of thousands of dollars that you’ll need to pay to your lender.
What to Do If You Have Forced Place Insurance
If you discover that your lender has purchased forced place insurance, the first thing you will need to do is to discover the type of insurance purchased and the reason why your bank or lender has purchased the policy for you. In some cases, banks and lenders buy forced place insurance because the homeowner has let an insurance policy lapse for nonpayment. In other cases, a homeowner becomes required to purchase a new type of insurance that was not required before. For example, if the flood designations in your area are changed, you may need flood insurance if your property is now designated as a flood zone when in the past it was not.
Once you have learned what type of insurance coverage has been purchased on your behalf, you need to purchase the required insurance coverage that you need or you must dispute that the insurance is required. For example, in the case of the flood designation, you may be able to have your property surveyed to prove it is not in a flood zone and that no flood insurance is necessary. If you let your policy lapse, on the other hand, or if the forced place insurance is a type of insurance coverage you actually need, you will need to get a policy that provides sufficient coverage to satisfy your lender’s insurance requirements.
After you have purchased the insurance that you need, you will need to send in proof of the policy to your lender. Your lender may also have specific forms and requirements that must be submitted with the proof of insurance. For example, you may need to send in a declaration page indicating that you have the necessary insurance. Once your property is properly insured and the bank has received proof of this, they are required to take the forced place insurance off.
Following Up and Taking Action
It is important to be aware that banks and lenders sometimes do not comply with the requirements. While the bank is supposed to remove the forced place insurance upon receiving proof that you are adequately insured, many lenders don’t and those that do can sometimes take weeks or months to make the change (all the while, with you incurring fees). Follow up with your lender after sending in your proof of insurance and be sure to get the names of anyone you speak to as well as to get something in writing from the lender when they have agreed that they received your proof of insurance and agreed to remove the forced place insurance.
According to a New York Times article in 2011, having the bank actually remove the forced place insurance when promised can be challenging since many banks fail to do what they are supposed to. While states and regulators are currently exploring requirements for forced place insurance and investigating possible abuses by lenders, and while Fannie Mae is urging stricter regulations, currently it will be up to you to follow up – repeatedly if necessary- to get rid of the forced place insurance if it has been imposed upon you.