The force-placed insurance market has a tight lock on Florida, which as a disaster-prone state accounts for 40 percent of default home insurance in the country.
However, state regulators are now conducting a review to determine whether the inflated rates charged to customers who default on their home insurance is in line with proper legal and ethical practices.
Miami foreclosure lawyers know this isn’t the first time the industry has come under scrutiny, with similar reviews held by state officials in both New York and California.
It works like this:
If you fall behind on your home insurance payments and the policy is canceled, the bank that granted you the loan for the mortgage has the authority to essentially “force” an insurance policy. The idea is to ensure the investment is protected in case of a disaster, such as flooding or a fire or a hurricane.
There might be nothing wrong with this, if not for the way banks are doing this – and what they’re charging for it. Doesn’t it always come down to greed with banks?
Consumer and investor advocates have repeatedly accused banks of overpaying for these force-placed insurance policies, with the insurance companies then offering kickbacks to the banks. In the end, it’s the consumers who are left to foot the bill, which is often a much higher premium than they were paying in the first place. Much higher. In fact, for a struggling family, forced place insurance can cost hundreds of dollars a month and can force bankruptcy or foreclosure.
It stands to reason that someone who couldn’t keep up with their home insurance to begin with is not going to be able to cover an inflated price. Ethically, there are some egregious violations here.
However from a legal standpoint, the whole practice of force-placed insurance doesn’t break the law. What is questionable, though, is the money that the banks receive from insurers. It was this point that was raised during the New York hearings. Regulators wanted to know what the banks are doing to earn these payments. Banks responded that the commissions they were collecting on the deals weren’t any different from those paid to insurance agents who sell policies directly to homeowners.
However, Florida’s insurance commissioner questioned whether that was actually true. He reasoned that if banks had contracts with insurance companies that would automatically put a policy in place if someone defaulted on their original policy, it would seem that the cost would be lower than if someone had to be paid to go out and find an insurance company and do all the other legwork.
In July, the state’s Office of Insurance Regulation held a hearing that mulled the insurance premium rates proposed by Praetorian Insurance. In that hearing, regulators pushed the company to produce additional documentation and to explain how the rates were set. Praetorian is the second-largest force-placed company in the state, just behind Assurant Special Property. Regulators have said Assurant is next on its list for hearings.
And it’s not just state officials taking an interest. Earlier this year, Fannie Mae said that it planned to bar banks from getting any sort of commission on directly-obtained force-placed coverage. However, those plans have yet to be formally enacted.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991.