What is force-placed homeowner’s insurance?
Maintaining homeowner’s insurance is one of a property owner’s primary responsibilities under a mortgage, and it is required for the life of the loan. Homeowner’s insurance protects the lender's financial interest if the property is damaged or destroyed. Most mortgages require the property owner to maintain adequate and continuous homeowner’s insurance on purchased property. The insurance requirement may also apply to cash-out refinances and home equity lines of credit. These insurance requirements are disclosed in the mortgage or loan documents. Under a mortgage agreement, typically, the property owner purchases a homeowner’s policy to meet these requirements. If a property owner fails to maintain the required insurance amount and cannot provide proof of the insurance to the lender, then the mortgage agreement permits the lender to obtain insurance on the property. The insurance taken out by the lender is called “force-placed”, “collateral protection” or “lender-placed” insurance. The lender will charge the property owner for the cost of the force-placed homeowner’s insurance.
What is the difference between a force-placed insurance policy and a homeowner’s insurance policy?
A homeowner’s insurance policy generally provides coverage for the dwelling, its contents, loss of use, and personal liability. Force-placed insurance protects the lender's financial interest in the property, and may not protect personal belongings, detached structures, or liability owed to others. Although force-placed insurance provides less coverage than what homeowner’s insurance provides, force-placed insurance is much more expensive than the cost of homeowner’s insurance.
There are two types of force-placed insurance policies: single-interest policies and dual-interest policies. Single-interest policies limit the amount of coverage to the outstanding balance of the mortgage. Hence, they only protect the lender. Dual-interest policies typically provide replacement cost coverage on the dwelling; this policy protects the lender and the borrower when the replacement cost coverage on the dwelling exceeds the outstanding balance on the mortgage.
How can I pay my homeowner’s insurance premiums whether force-placed or not?
A property owner can pay homeowner’s insurance premiums by setting up an escrow account with the lender or by sending premiums directly to the insurer. With an escrow account, the lender collects the insurance premiums through the mortgage payments and pays the homeowner’s insurance premiums on the property owner’s behalf. If paying by escrow account, the property owner should check the mortgage statements monthly to confirm that the homeowner’s insurance premiums are being paid and contact the lender if the homeowner’s insurance premium is not reflected in the monthly payment amount of the mortgage statement.
The cost of the force-placed homeowner’s insurance is usually added to the mortgage payment through an escrow account.
How will I know that the lender needs proof of my homeowner’s insurance?
If the lender does not have proof that you have purchased adequate homeowner’s insurance on your property, then it has the authority to purchase force-placed insurance on your property, and you will be responsible for paying the force-placed homeowner’s insurance premiums. However, before your lender can purchase force-placed homeowner’s insurance, federal law 12 C.F.R. §1024.37 requires that your lender deliver or mail written notice requesting proof of adequate homeowner’s insurance, and intent to purchase force-place homeowner’s insurance in absence of your proof. You will have 45 days to respond to the lender.
Which of my documents constitute proof of adequate homeowner’s insurance?
A lender may require a copy of your homeowner’s insurance policy declaration page, your homeowner’s insurance certificate, your insurance policy, an insurance binder, or other similar forms of written confirmation as proof that you have adequate homeowner’s insurance. Your lender can obtain insurance coverage if the information you provide cannot be verified, or if the terms and conditions of your homeowner's insurance policy do not satisfy the insurance requirements identified in the mortgage contract.
If the mortgage documents do not clearly state the requirements for adequate and continuous homeowner’s insurance, contact your lender.
Why did my lender purchase force-place homeowner’s insurance?
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You did not purchase a homeowner’s policy.
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The lender has not received proof of coverage with the lender shown as the mortgagee (however the property owner has purchased a policy).
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Your homeowner’s policy was cancelled or non-renewed by the insurance company.
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Your homeowner’s policy expired because the renewal premium was not paid.
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The lender has proof of your homeowner’s insurance policy, but your coverage is inadequate per the terms of the mortgage agreement.
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The lender may force-place flood insurance on homes in flood zones.
How can I protect myself from force-placed homeowner’s insurance?
- Continuously maintain at least the minimum amount of homeowner’s insurance coverage required by your mortgage lender.
- Make sure that your policy includes the mortgage contract number, the lender’s name and address, and its successors and assigns (this transfers the rights of the lender to any entity that purchases the mortgage from the lender), because 1) the mortgagee clause in your contract document guarantees payment to your lender if your property is damaged or destroyed; 2) your lender may need to contact your insurer or insurance agent to confirm that you have adequate homeowner’s insurance; 3) your insurer or insurance agent may need to contact your lender if it has agreed to provide proof of adequate homeowner’s insurance to your lender, on your behalf; or 4) your lender may sell the mortgage to another entity.
- Do not assume that the insurance agent or insurer has provided the lender with proof of your insurance policy. They are not obligated to do so. Ask your lender for the proper way to provide the lender with proof of your insurance policy and be sure to follow these guidelines.
- If your homeowner’s insurance premium is escrowed, check your mortgage statements to make sure that your homeowner’s insurance premiums are coming out of your escrow account. All subsequent homeowner’s renewal policies should include the lender’s name as the mortgagee, and they should show that the premium is being billed to your lender. Immediately contact your lender regarding any escrow account concerns.
- If your policy is cancelled or non-renewed, purchase replacement coverage immediately.
- Confirm that your lender has proof that you have adequate homeowner’s coverage.
My lender has forced-placed homeowner’s insurance on my home. How can I cancel this coverage?
- If your own homeowner’s insurance has been continuously in effect and meets the terms of the mortgage agreement, then immediately provide your lender with such proof via certified mail, fax, or email.
- If you did not maintain continuous homeowner’s insurance coverage, then try to purchase a new homeowner’s insurance policy that meets the mortgage requirements.
- If you maintained continuous homeowner’s insurance coverage, but your policy did not meet the mortgage requirements, try to amend your existing policy to include the required coverage or get a new policy that meets the mortgage requirements.
Upon satisfaction of meeting the mortgage requirements, immediately provide your lender with proof via certified mail, fax, or email. Continue to pay the force-placed homeowner’s insurance premiums until your issue is resolved. Per federal law, 12 C.F.R. §1024.37, within 15 days of receipt of such proof, your lender must: 1) cancel the force-placed insurance policy; 2) refund all force-placed insurance premiums and related fees that you paid for any period of overlapping insurance coverage; and 3) remove from your account all force-placed insurance charges and related fees for the period that your lender has assessed.
Who can I contact if I have other questions or wish to file a complaint?
You can call the DC Department of Insurance, Securities and Banking (DISB):
202.727.8000
You can fax us:
202.671.0650
You can visit us in person:
DC Department of Insurance, Securities and Banking
1050 First Street NE, Suite 801
Washington, DC 20002
You can file a complaint online:
You can print and complete the complaint form, and mail it to DISB:
DC Department of Insurance, Securities and Banking
1050 First Street NE, Suite 801
Washington, DC 20002