Articles Posted in force-placed insurance

A settlement deal reached in a Miami federal court ended with Bank of American and QBE Insurance Company agreeing to pay nearly $230 million for their dual roles in a kickback scheme that involved inflating the cost of insurance that was forced on homeowners who had defaulted. windowarchfrontdoor.jpg
Miami foreclosure lawyers
know that these force-placed insurance deals plunged many distressed borrowers in Florida even further into debt, in some cases resulting in them losing their homes. This case, Hall v. Bank of America N.A., heard before the U.S. District Court in the Southern District of Florida (Miami), is the latest of several multi-million-dollar deals reached over the issue in the last year.

There is nothing inherently illegal about force-placed insurance per se. Lenders are allowed to take action to protect interest in a given property when a borrower has allowed the homeowner’s insurance to lapse – regardless of the reason.

Forced-place insurance is usually obtained through companies that offer high-risk coverage. The reason is that most other companies won’t touch these cases because they recognize a higher probability of loss. Most of the time, these higher-risk policies are far more expensive.
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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. business.jpg

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.
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Miami foreclosure attorneys for some time had shared frustration with underwater homeowners, struggling to dig their way out of debt and a Miami foreclosure, that lenders were utterly unhelpful in the process. finance.jpg

They made it exceedingly difficult for these individuals, harmed by the collapse of the housing market (which was fueled by these same institutions), to get loan modifications or other assistance.

Now, however, it appears that not only were lenders impeding the process – they were often actively setting those roadblocks.

As if people battling a Miami foreclosure weren’t enduring enough, many are also forced to contend with force-placed insurance. dollarbillsyall.jpg

Our Miami foreclosure attorneys are familiar with this shady practice, whereby banks and other lenders can impose their own, cherry-picked insurance policies for homeowners who lapse on their mortgage and insurance payments. This is legal, and it’s called force-placed insurance. The problem, however, has been that in far too many cases, these entities exploit the homeowners’ vulnerable position by overcharging them for this insurance. This is illegal.

Now, a financial regulator in New York is expanding the scope of its investigation into this practice, after finding evidence that insurers and lenders abused their authority. The New York Department of Financial Services has been sending out formal document requests and subpoenas to a host of insurance companies, demanding that they answer how their loss ratios and rates were determined.

A loss ratio is basically the percentage of premiums that an insurance company collects that is then paid out to the policy holder. When regulators first started looking into this last fall, they realized that the loss ratio was as little as 20 cents for every dollar – versus the 55 cents for every dollar that was reported to the regulators.

This legal loophole has long been criticized, even before the mortgage crisis, because it is so easy to exploit, given the close relationships that exist between mortgage servicers and their brokers and insurance companies and their agents. The New York agency is taking a close look at these relationships, as well as the rates that were charged.

In addition to charging very high rates, these policies also rarely have solid protections in place for the homeowner. Here again, they take advantage of people who are already struggling.

What’s more, many individuals have had this high-rate, low-protection insurance forced upon them when it wasn’t legally allowable. In fact, New York officials found that insurance and mortgage companies erroneously forced the coverage on an astonishing 30 to 40 percent of homeowners since 2006.

The ongoing investigation was the reason federal mortgage servicer Fannie Mae started to create distance between itself and the banks when selecting force-placed insurance companies. The idea is to lower costs for both Fannie Mae and borrowers.

This is not simply a New York problem. The insurance commissioner in California recently instructed the 10 force-placed insurance companies there to lower their rates.

With so many homeowners across the country struggling in the wake of a real estate boom, the amount of force-placed insurance increased from $1.5 billion in 2004 to about $5.5 billion two years ago.

Lawsuits have been filed by homeowners, who have claimed in some instances they were charged at a rate of nine times higher than they paid before. Of course, insurance companies say these instances are few and far between, but Miami foreclosure attorneys are aware of other similar cases as well.

For example, a Palm Beach homeowner has alleged in a recent federal lawsuit that when he lapsed on his insurance payments, he was given a force-placed insurance plan that charged him a whopping $10,000 for about a half a year of coverage. Once he reinstated his own coverage, his payments plummeted to about $2,500 for the entire year.
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