In 2015, four Florida residents and a Pennsylvania homeowner filed a class action lawsuit alleging they were being overcharged for force-placed insurance by their lenders. In September, a federal appeals court unanimously voted to dismiss the case. The lawsuit's implications and final results make force-placed insurance more important than ever for Florida homeowners to fully understand.
When homeowners take out a mortgage to purchase a home, lenders require evidence of property insurance on the home before finalizing the loan. In addition to documented evidence of insurance, the lender typically requires that homeowners maintain property insurance on the home until the mortgage is paid in full. The insurance requirement is not uncommon because lenders have funded the purchase; they ultimately have the most to lose in the event of a total loss.
To ensure the property insurance remains in effect, lenders require their company be listed as an additional interest and/or insured. As a listed additional interest on the policy, the lender receives notice of any changes that are made to the property insurance. Being listed on the homeowner's insurance is a safety precaution for lenders in the event homeowners decide to cancel the insurance or allow it to lapse.
Understanding Force-Placed Insurance
Force-placed insurance (also known as lender-placed insurance) comes into play when a homeowner fails to purchase property insurance, allows their insurance to lapse or decides to cancel it. When there is no property insurance, mortgage lenders can purchase a property insurance policy on behalf of the homeowner and charge them for it accordingly. This is known as force-placed insurance, and it will only happen if the homeowner fails to meet the lender's insurance requirements.
Why Researching Coverage Is Crucial
Looking for homeowners insurance in Florida can be exhausting and difficult to secure, depending on where you live in the state or how close your property is to the shoreline. There are numerous insurance companies offering homeowners insurance in Florida. Researching coverage on your own is far more beneficial than just letting the mortgage lender purchase one for you.
First, it is important to understand that a force-placed insurance policy only benefits the lender. The lender wants to ensure the balance of the mortgage or refinanced loan is repaid in full. But in the majority of cases, the force-placed insurance is not enough to rebuild a property after a total loss—rather just enough to pay the balance due to the lender.
By comparing insurance quotes, Florida homeowners can ensure they are getting fair rates and a good price. Homeowners who skip this research may end up paying two or three times as much on force-placed insurance. That's because the lender is only concerned with getting the coverage in place as quickly as possible.
Plus, by researching coverage you can be sure all of your property is covered, including personal belongings. In most cases, the force-placed insurance only covers the building, not the belongings inside the home. When you research coverage upfront, you can make sure all of the property inside your home and any exterior buildings are listed properly. You'll also ensure you purchase an adequate amount of coverage to replace your home and belongings in the event of a fire, storm or other covered loss.
What to Do if You Have Force-Placed Insurance
Many Florida homeowners have already fallen victim to force-placed insurance. The good news is that you're not stuck. First, contact the lender and confirm that the force-placed insurance can be canceled after you show evidence of property insurance.
Once confirmed, request quotes from multiple insurance companies that offer coverage to Florida homeowners. It is essential that homeowners compare coverage in addition to costs and company reputation. After purchasing homeowners insurance, request evidence of property insurance that lists the lender as an additional interest, and submit it to the lender. Then request cancellation on the force-placed insurance.