Real Estate Matters | Lack of homeowner’s insurance sparks dispute with lender

July 2

(Joe Raedle/GETTY IMAGES)

In the year of 2013 (the entire year) I had no homeowners insurance. So last February, my mortgage company placed a lender-based insurance policy on my escrow to cover last year. Because of this my escrow has fallen into the negative and my mortgage keeps going up. I do now have my own insurance, but the lender says that they have to charge me for last year. I am so beyond mad!

Why didn’t you carry a homeowner’s insurance policy? Your mortgage agreement with the lender requires you to have one. And if you don’t get one, the lender has the right to purchase one for you (which typically will only insure the lender and will be extremely expensive).

By not having an insurance policy, you’ve put yourself and the lender at unnecessary risk. If you want to be mad at someone, be mad at yourself for not complying with the legal agreement you signed.

As for your escrow account being negative, the lender has the right to require you to keep enough cash in that account to cover your property taxes and insurance premiums. Your mortgage will go up every month until it not only covers the expense, but there is a two month cushion in addition to the basic costs.

While you might think that your lender is charging you for something you didn’t receive last year, you might want to dig a bit deeper. Your lender’s insurance coverage on the home may have covered your lender for any incidents that occurred last year. That policy might have been through a third-party company and might have been put in place at the time your lender received notice that your insurance policy wasn’t renewed. You might not have been billed at that time and it was only recently that your escrow was charged for the insurance amount billed.

Now, if what you say is true and your lender never had any insurance in place for your home last year — and had there been a catastrophic loss on your home, neither you nor your lender would have any insurance coverage — it would seem that your lender shouldn’t charge you for something that wasn’t in place.

We’re aware of many lender abuses, including fees for insurance coverage in your type of situation that are extremely high, but we have not heard of any situation in which lenders didn’t get insurance at all and billed their borrowers for purported insurance coverage on the homes. If you are correct, it wouldn’t surprise us to see a class action suit against lenders for the situation which you claim to have gone through.

You might want to ask your lender to give you evidence that they obtained forced insurance coverage on your home for last year. At least if they provide that, you’ll know that they had obtained it and only billed you quite late in the process.

One last item on your escrow: You might be able to request that your lender allow you to pay the amount owed for the forced placed insurance over a greater period of time. We know of some lenders that will allow borrowers to pay those amounts over two to three years.

Remember, it’s never a good idea to leave your home uninsured. You shouldn’t risk it and your lender will never go along with it.

Ilyce R. Glink’s latest book is “Buy, Close, Move In!” If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 a.m. to 1 p.m. EST. Contact Ilyce through her Web site, www.thinkglink.com.

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