New York State is investigating the practice of forced-place insurance. The question is whether banks like Wells Fargo and Citigroup, among others, fraudulently steered distressed homeowners into overpriced insurance policies.
Forced-placed insurance has boomed during the financial crisis as homeowners have struggled to pay their mortgages, and, at the same time, lapsed on their home insurance payments. Banks customarily require that their mortgage-backed homes be insured; a measure that enables a way to collect if their properties are damaged.
As The New York Times article linked above states:
In general, mortgage servicers are allowed to take out insurance policies on homes after a homeowner allows existing coverage to lapse. Though homeowners have little choice and sometimes little notice about the new plans, they often end up shouldering the costs of the insurance through their mortgage payments.
The increased cost is to be expected to some degree because homeowners who missed insurance payments on old policies are risky customers. However, [the financial services agency in New York investigating the matter] views some of the increases as exorbitant. For instance, in one case . . . a homeowner who paid $2,000 a year to State Farm ended up paying $6,000 a year to a new insurer.
Potential wrongdoing may occur when both mortgage servicing and insurance units are within the same company or affiliated in some way. That introduces a potential conflict because companies may have an incentive to place homeowners in policies offered by their affiliates rather than looking for the best rates on the open market.
Along with all the legal battles being fought nationwide over foreclosure abuses, this could be yet another hurdle for our largest banks to overcome. And the problem, once again, is that the financial industry has brought about circumstances that may be holding up economic recovery. In this instance, with home insurance, some homeowners have found it more difficult to refinance their loans after banks tied this compulsory insurance to their debts.
Weâ€™ll keep you up to date as this investigation unfolds.
Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.
Mr. Hounchell has a law degree from The University of Florida College of Law and he is a principal in The Law Offices Charles A. Hounchell, P.A., in Tampa, Florida. Mr. Hounchell earned his undergraduate degree from The George Washington University in Washington D.C. and he obtained his MBA in International Management from the American Graduate School of International Management (â€œThunderbirdâ€) in Glendale, Arizona.
Mr. Hounchell is a licensed title insurance agent and a real estate agent with Smith and Associates, Inc. http://www.smithandassociates.com/; http://www.livecasanova.com/. He has lived in many different countries, including Spain, Brazil, Argentina, Mexico and Germany and he speaks Spanish and Portuguese. A significant portion of Mr. Hounchellâ€™s law practice is concentrated on Real Estate Law. He can be reached at 813-230-3376 or firstname.lastname@example.org.