Force Placed Insurance Lawsuits Mounting
Last Updated on June 26, 2017
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At A Glance
- This Alert Affects
- Consumers forced or coerced by their bank, lender, or mortgage company into purchasing or maintaining an excessive insurance policy.
- Company(ies)
- M&T Bank, Fifth Third, Dovenmuhle, Provident Funding, Flagstar and Capital One
- Additional Details
- When a borrower has no insurance, or when coverage lapses, the lender is permitted to purchase insurance on their behalf – also known as "force placing." It has been alleged that certain financial institutions are abusing their authority when they force place insurance on their customers, who are forced to pay for the high costs of unnecessary or excessive coverage.
Some of the nation's largest financial institutions are abusing their authority when they force place insurance on their borrowers, according to a number of force placed insurance lawsuits. Allegedly, lenders are engaging in deceptive and unfair force placed insurance practices, making their customers pay the high costs of unnecessary, duplicative or excessive coverage, simply to increase their profits. In some cases, the mortgage lenders are reportedly receiving kickbacks for these purchases, the cost of which is expensed to the borrower.
Can My Bank Force Me To Carry Insurance?
When a borrower lets their insurance lapse, their lender is permitted to purchase insurance for them, also known as "force placing." It has been alleged, however, that some lenders are taking advantage of this permission and using it as an excuse to increase the fees they charge to their customers. There have been many allegations in which lenders have force placed insurance on consumers who do not need it; the consumer is then forced to pay for this coverage, the high premium of which is added to their loan balance, or in some cases, deducted from their home equity account.Force place insurance coverage is typically more expensive than a policy the borrower could have purchased on their own – sometimes up to 10 times as costly as a regular policy. In addition to being more expensive, lender placed insurance typically offers less protection.
How Lenders May Be Taking Advantage of Borrowers
Force placed insurance lawsuits have claimed that lenders have been taking advantage of their customers when they force placing insurance, opting to buy exorbitantly priced coverage or force placing a policy, even when the property owner already had adequate insurance. The following are among the types of allegedly unfair business practices outlined by force placed insurance lawsuits:
- Backdating coverage: Billing customers “retroactively” for time periods which have already passed.
- Unnecessary insurance: Force placing insurance on a borrower who does not need additional coverage, as their existing policy is sufficient.
- Duplicating coverage: Issuing new policies which are redundant and duplicate policies already in place. In some instances, lenders are force placing duplicative insurance on condo residents, who are already insured through their condominium association.
- Excessive insurance: Force placing insurance in amounts greater than required by federal law, greater than necessary to secure their principal balance or credit line and greater than required by their mortgage agreements.
- Allowing lapses: Allowing insurance to lapse without providing adequate notice that they would purchase lender-placed coverage on their behalf.
Force Placed Insurance: Are Banks Violating the Law?
According to federal force placed insurance regulations, this form of coverage must be “reasonable.” Filed force placed insurance lawsuits suggest that certain lenders have been failing to comply with this provision, forcing their borrowers to pay for expensive, excessive and sometimes unnecessary coverage.
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