Lawyers in our firm are involved in cases against major banks and insurance companies related to the placement of “force-placed” property insurance against homeowners and other owners of real property. Standard mortgage loans require borrowers to purchase and maintain property insurance (typically hazard, flood, and/or wind coverage) on the secured property to protect the lender’s interest in the property. To ensure that the lender’s interest in the secured property remains protected, standard mortgages allow the lender or third-party servicer to “force-place” insurance when the owner fails to maintain the property insurance. Any amounts disbursed for the procurement of such insurance, which is for the benefit of the lender, are passed on to the borrower and charged to the borrower’s escrow account and become additional debt owed by the borrower.
Force-placed insurance is always more expensive than standard insurance coverage, even costing up to ten times more than standard policies purchased by a borrower. Lenders and servicers claim that the higher cost of force-placed insurance derives from purportedly legitimate administrative costs, the costs of procuring insurance on property without individual underwriting, and the higher risks associated with insuring properties that are not insured by the borrower. Borrowers, on the other hand, allege that the cost of force-placed insurance is artificially inflated to cover kickbacks, self-dealing, and secret profits shared between lenders, servicers, and the providers of force-placed insurance. “Behind banks’ servicing insurance practices lie conflicts of interest that align servicers and their insurer partners against borrowers and investors,” writes Jeff Horowitz in a November 9, 2010, article available at www.americanbanker.com. Diane Thompson, of counsel for the National Consumer Law Center, was quoted as having told Horowitz:
There’s no arm’s length transaction here, and that creates all sorts of incentives for the servicer to force-place excessive insurance and overcharge consumers for policies that provide minimal benefit. Servicers and insurers have turned this into a gravy train.
Lawyers in our firm are involved in litigation alleging that banks and insurers have engaged in unlawful, abusive practices with respect to force-placed insurance, including: providing force-placed insurance at unreasonably high costs to borrowers; engaging in “kickbacks” from insurers to banks in the form of purported fees, payments, commissions, and rebates; and forcing borrowers to pay for unnecessary and duplicative insurance. To learn more, or if you or a family member believe you have a force-placed insurance claim, contact Archie Grubb or Bill Hopkins, lawyers in our firm at 800-898-2034 or by email at Archie.Grubb@beasleyallen.com or Bill.Hopkins@beasleyallen.com.
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