FORCE PLACED INSURANCE COMES UNDER SCRUTINY IN NEW YORK

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EDITOR’S NOTE: Another example of the Banks claiming more than they are due. Force placed insurance is a game that the banks have been playing for years. They use any excuse possible to use it because they “buy” forced placed insurance to replace the insurance that had “lapsed.” Of course in most cases the insurance has not lapsed and the homeowner has not even received notice that there was a problem. In most cases the homeowner, when notified, corrects it and still finds that they now have a bill for an additional insurance policy whose premium is three times what they are paying to the carrier.

Needless to say, the reason for this practice is perverse incentives. The Bank often owns the insurance brokerage, but even if it doesn’t it receives a fee or kickback that is often equivalent to the regular premium. The perverse consequence of this is that at the time of foreclosure, a homeowner who is up to date on the insurance is forced into a position of paying the force placed insurance if they want to bring their payments up to date.

Big Banks Face Inquiry Over Home Insurance

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A New York State financial services agency is investigating several large banks to see whether they fraudulently steered homeowners into overpriced insurance policies.

The investigation centers on so-called force-placed insurance that has become increasingly common since the downturn of the housing market began and homeowners had trouble keeping up with payments on their home insurance.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are among the major companies involved in the inquiry by the office of Benjamin M. Lawsky, the superintendent of New York State’s Department of Financial Services, according to a person briefed on the investigation who asked to remain unidentified because the matter was private.

Mr. Lawsky’s office issued 31 subpoenas or other legal notices related to the case in early October, just as the state’s insurance and banking departments were merged under his new agency. His office has already turned up instances where mortgage servicing units at large banks steered distressed homeowners into insurance policies up to 10 times as costly as the homeowners’ original plans.

In some cases, those policies were offered by affiliates of the banks themselves, raising questions about conflicts of interest; in other cases, there may have been kickbacks between unrelated companies, according to the person briefed on the investigation.

Representatives of Citigroup and Wells Fargo said they were cooperating with the investigation. Bank of America said it could not comment “on an active matter” but that it had a practice of cooperating with investigators. JPMorgan did not comment.

The investigation is yet another legal battle for the nation’s largest banks and points to the sorts of problems they may continue to face nationwide. The banks, in separate negotiations with federal and state authorities over suspected foreclosure abuses, have been trying to negotiate a settlement with state and federal officials to avoid future investigations, but it is not clear if businesses like home insurance would be covered if a deal were reached.

It also points to one of the many problems that may be holding up the housing recovery. Some homeowners have found it more difficult to refinance their loans after banks tied this compulsory insurance to their loans.

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, Mr. Lawsky’s office views some of the increases as exorbitant. For instance, in one case his office is examining, 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.

David Neustadt, a spokesman for the state’s financial services department, declined to comment on the investigation, but noted that Gov. Andrew M. Cuomo had combined the state’s financial overseers to be able to take on what Mr. Neustadt called the “sometimes problematic overlap between banking and insurance.”

Force-placed insurance was a niche industry before the financial crisis, but it has grown drastically in the last few years. As homeowners struggle to meet their mortgage bills, they often lapse on their home insurance payments first. Banks typically insist that homes backed by their mortgages must be insured, so that they have a way to collect money if the properties are damaged.

In many cases, banks are servicing loans on behalf of mortgage security investors, and banks have a duty to maximize recoveries on behalf of those investors. Force-placed insurance is one way banks try to protect against losses.

The investigators are looking for the potential conflict at Bank of America involving a unit called Balboa Insurance that it owned until last year. That unit’s interaction with the bank’s mortgage servicing is an important focus for Mr. Lawsky, the person familiar with the investigation said.

JPMorgan is a focus of the inquiry because in recent years the bank held a small financial stake in an insurance company called Assurant on behalf of its clients, the person said.

Mr. Lawsky’s office is also investigating banks that do not own insurance companies to see if they received kickbacks for steering their mortgage clients’ business to particular insurers. His office has not yet reached a settlement in this area with a large bank, but some smaller players in mortgage servicing, like Goldman Sachs, have already agreed to his demands that they change their practices with force-placed insurance.

 

9 Responses

  1. My husband and I fought the bank (a long arduous six year battle), when we discovered that our signatures had been forged on the mortgage of our home, notarized and recorded. After six years of being beaten, bitten, battled and bruised, we won in the 6th US Circuit Court in January of 2004. (Sutter vs US Bank)
    You would have thought that it was over…but not by a long shot. I spent the first half of 2012, looking for, and finding a reputable law firm to handle Act II of this never-ending story of victimization on it’s highest white collar level.
    Even though the bank doesn’t have a valid lien on our property (the mortgage was avoided in 2007), they still act as if there is one. The jump us on paying the taxes on our home (realistically, my husband and I pay close to the due date, because that’s what we can afford to do; and the bank makes sure that they pay before the end of the year, in order to get the tax break (and taking the tax break away from us, making sure the we, as self-employed people, are made to suffer more.
    Throughout this whole debacle, our home that we have fought so valiantly for, has been slowly but surely deteriorating. Here is the kick…the “mortgage” company feels that they have had the right to insure our home for the past six years (even at times when we already had homeowners)…so even though they have absolutely no interest in our home they have an insurance policy on our home with their names as Named Insured. Even though they have no mortgage (just a note (we will get into that in a moment)); if my home were to burn down tomorrow, they would get paid and we would be homeless (their goal from the get-go on this).
    Well, last Thursdays, I set fear aside and filed a claim on that insurance. We are on the policy as Other Insured and, due to the banks actions, we have not been able to fix our home, which has caused some extensive damage to our roof and knee wall on the second floor (we won’t even discuss the garage where the roof collapsed on it last Fall). When I told the mortgage adjuster they didn’t have a mortgage, but they had a note, he couldn’t understand how (join the club). So this should prove to be interesting. There is a valid policy; the court system, bank and our attorneys hindered us from ever contacting the insurance company (don’t fix the house, it may not be yours). We didn’t even know that we were able to file a claim; after all, the policy was not purchased by us (even though it has gone on our ever-growing bill with said company, every year, along with the tax payments).
    Let’s put this all into focus.
    1. The bank, when they lost the mortgage in 2007, most likely filed a claim with the title insurance and was paid for the note on our home (this is being investigated)…we will call this Pay Day 1
    2. The bank, should something catastrophic happen to our home, would get paid for the property and we, should we survive, would be out on the streets with nothing…Pay Day 2
    3. The bank, as we get further into our current litigation are going to want their “Note” paid from the judgment…Pay Day 3
    Let’s delve a little deeper:
    1. With them as named insured on this insurance policy odds are good that they are going to try to get their name on that insurance check (because isn’t that protocol that the Named Insured is on the proceeds) which would mean that they could take the proceeds from the insurance check, intended to fix the house and apply it to the “arrearages”…Pay Day 4?
    Let’s delve into the taxes
    1. For the past six years, the bank has repeatedly beat us to the punch on paying our property taxes. Each of those years they have had the tax advantage of taking that deduction away from us at tax times, hurting us by costing us money in taxes we wouldn’t have had to pay had we made the tax payment. Now that we are going for the judgments against them, they are going to want to have their tax money paid. Now we pay those taxes and we have to go back and redo our taxes? Do they redo their taxes? Or do we just eat it?…Pay Day 5?
    Here is the reality that I personally see. In six years, we proved that the bank was at fault for a forgery…considered a crime in the real world. The fact that they can insure my property when they have no legal interest is outrageous…the fact that they can lie to the insurance company (as demonstrated by the language in all correspondence from the insurance company where my husband and I are listed as “Mortgagees” and the servicing company as “Mortgagor”. In my mind, this is Insurance Fraud on the part of the bank…isn’t that a crime too?
    I feel like I am in this never-ending tempest of lies, deceit and fraud…it will be interesting to see how this insurance issue plays out.

  2. @Jane van Eyck,

    That’s where most of our pain comes from: fraud upon us is committed from so many different angles that, in order to simply survive it, we have to do constant homework and learn so much that it ends up consumming our every hour, every minute and every second, at the expense of our work, family and enjoyment of life.

    And for that, not too many people have been compensated yet! I don’t even know if ONE person was able to get compensated for it, military aside. Geez… they haven’t even been compensated for their actual, monetary damages, such as the theft of the house, down payment, payments, etc. Let alone the emotional and collateral health damages caused as a result!

  3. I had an annual flood insurance policy $309.00. The servicer decided to circumvent my escrow waiver and pay for “their” placed insurance of $2642.00 for the same policy, whereby raising my mortgage payment over $200 per month. Let’s see; that is 8 times the real premium. To date this is not resolved. You need eyes in back of your head to fight with these folks, as it is not just the foreclosure, it is the behavior, like pleced insurance that can easily put you in default. You need an attorney on retainer for cripes sake!

  4. I fail to see how a servicer who is not the creditor nor the holder in due course, has an insurable interest. Isn’t it illegal to insure something you don’t own? We could insure the Brooklyn bridge and get claim proceeds when a truck hits it, if it were possible to insure and collect damages on something you don’t own. That would make the premiums extortion or worse, if extracted from the homeowner.
    I think these force-placed insurance claims are just more crap foisted on us by criminals in an attempt to get even more illicit profit.

  5. Here is what at least one investor lawsuit has to say about this (and many other things at affect both borrowers and investors re foreclosure milll):

    “Nominally purchased to protect the owners of mortgage-backed securities, such“force-placed” insurance can be 10 times as costly as regular policies, raising struggling homeowners’ debt loads, pushing them toward foreclosure — and worsening the loss to investors on each defaulted loan.Evidence of abuses and self-dealing in the force-placed insurance industry suggests that there may be far larger problems in how servicers are handling distressed loans than the sloppy document recording that has been the recent focusof industry woes.Behind banks’ servicing insurance practices lie conflicts of interest that align servicers and their insurer partners against borrowers and investors”

    From the same case re no mortgage in the “mortgage backed”:

    “It is apparent that the defendant knowingly failed in its obligation to receive, process, maintain, and hold all or part of the mortgage files,” Knights of Columbus, based in New Haven, Connecticut, said. As a result, it didn’t acquire mortgage-backed securities, “but instead acquired securities backed by nothing at all,”

    The case is Knights of Columbus v. Bank of New York Mellon, 651442-2011, New York State Supreme Court (Manhattan).

  6. I’m in Florida. When I piad my insurance (State Farm) it was about 2500 a month. Now BOA is force placing for about 8,000.

    Meanwhile the market value of the house has fallen about 50%, from $300,000 to $150,000.

    I’m sure BOA does not shop around for insurance. They just charge as much as they can. Another scam – shocking.

  7. Thanks Jan van Eck!

  8. The way to deal with these morons is to file suit against each offender (the insurer, the “inspector”) without naming the pretender bank gangster as a co-defendant. Allege interference with your property rights and money damages. You can ask for injunctive relief and ask for an Order to Show Cause, which forces them to actually show up in Court for an evidentiary hearing on why an injunction should not issue against them. Nothing like the prospect of litigation and facing a jury to take the interest of these morons out of messing with you.

    Here are the economics: the “insurer” charges a premium of say $2,500 for that forced-place insurance. They do a kick-back of say $800. That leaves them with $1700 and from that there are the usual underwriting costs, plus of course some risk exposure that has to be set aside. Now against that, since they are an out-of-State insurer, are the costs of retaining fresh counsel to represent them (Figure $5,000 up front), costs to show up at the Show-Cause hearing (somebody from the company has to travel into town, get a hotel room, spend a day in court, then go fly home, rent auto, and so forth), and they pay for their counsel fees to spend the day in Court (another $1600), and already the fun is out of the theft. Watch them “cancel flat” the policy and leave you alone. Does cost you a few hundred in filing fees and process server fees, but you send them a message.

    As to the “inspector” moron, remember that he is doing nothing more than a drive-by (if he even shows up at all). These “inspectors” are (correctly) fearful of getting shot on sight, so they never get out of their cars, and never look at the back of the house, and certainly are not inspecting the garage, or the inside. When you get the “inspector” on the stand at the show-cause, have a nice 8 x 10 color glossy of the back of the house and ask him to testify to it – except it is from some other house, a chum of yours in another neighborhood, and that person is ready to testify that it is the chum’s house, in rebuttal. So much for the credibility of the “inspector.”

    You also get this crap with “appraisers” that will submit an “appraisal” with “comparables” that are fantasy. They will testify that the photos of the comparables were personally taken by the appraiser, from the public street, but if you look closely (and go back to scope out the actual house) you will find that the photos are not of that house, could not be taken from the public street, and in some cases were taken years ago by another, when you see new fences or driveways or outbuildings in the pictures. I once had an “appraiser” testify to taking personal photos, except (a) house #1 was on a different street, and with the same angle but 20 ft back, now the mailbox with another number was in view (embarrassing, that); (b) house #2 was on a flag lot that was invisible from the street, and a photo I made of the long driveway into the trees established that; (c) house #3 was 200 feet from the road and behind a full forest, invisible, and behind a private gate, so no way Jose on that one; (d) house #4 was 1,780 feet up a private dirt road and over a ridge, and the photo of the front showed a stone wall that the owner then told me he had removed two years ago. When you bring in fresh photos that dispute the phony appraiser photos, you demolish the phony appraisal, and then sue both the plaintiff and the appraiser in separate actions for their frauds and damages.

    But you have to do your homework, so dig out that camera.

  9. Not only the insurance scam but also property inspections. BoA is fully aware that we still live in our home but have been in litigation with them for the past 7 months. I just found out that they have been sending inspectors to drive by our home sometimes as ofter as twice a month for the last year and charging A fee of almost $500 a crack tacked on as foreclosure expenses. I speak with and receive their legal papers at my home address so it is just another money making scam. Too bad we can’t just pick them up and put them back under the rock the crawled out from.

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