About a year ago, a North Miami Beach homeowner slipped up: He let his homeowners insurance lapse. Today, he finds himself petitioning a federal court to certify his lawsuit as a class action. He claims that the defendants, an insurance company and his former mortgage lender, have not acted in good faith and that their practices are deceptive and unjust.
The complaint targets the companies’ practice of purchasing very expensive homeowner insurance for mortgage customers whose policies have lapsed. The policies are generally referred to as force-placed or lender-placed insurance, and they are the subject of at least one other class action suit at the moment.
To secure financing for a home loan, a borrower must also secure a homeowner insurance policy. If the borrower doesn’t have insurance, or if, as in this case, the insurance lapses, the bank can purchase insurance on the borrower’s behalf. (We discussed force-placed insurance in several posts earlier this year.)
Banks, however, have no incentive to negotiate a low rate. In fact, the lender in this case received an 11 percent commission from the insurer — on a premium that amounted to about $10,000 for a few months of coverage. That works out to $18,000 per year; the plaintiff’s lapsed policy had cost just $2,500 per year.
The lender didn’t send the plaintiff an invoice, either; the amount was just deducted from his escrow account. What made the plaintiff really mad, though, was that he had been a customer with this lender for years.
We’ll finish this up in our next post.
Source: The Palm Beach Post, “Lapsed home insurance policy leads to $10,000 premium for North Palm Beach man,” Adam Beasley, June 8, 2012Share