Can a Bank Force Insurance Policy to Combine Premium with Monthly Mortgage Payments?
The short answer is yes. Part of the agreement you made with the lender is that you would carry an appropriate amount of homeowners insurance. If you fail to obtain it, the lender has the right to purchase a policy, which you must pay for. Your best option is to reinstate your own Homeowners' Insurance (HOI) at a cost that is less expensive than the one the lender might set. The lender does not have an incentive to find the least expensive policy but you do.
What Happens When You Do Not Have Homeowner's Insurance?
If you fail to show proof of Homeowner's Coverage, the mortgage holder has the duty to put “Force-Placed” coverage on your property. This is added to your homeowners account, and if not promptly paid, it could eventually lead to the loss or repossession of your home.
Often, this situation arises when the homeowner's insurance company fails to notify the mortgage lender at renewal. In such cases, the homeowner must provide proof of coverage to the lien holder. This can be easily resolved by forwarding the proof of coverage to the lien holder.
However, if there is a lapse in coverage, the homeowner can still purchase their own less expensive policy that meets the lender's requirements. They will only be responsible for the force-placed policy for the time they cannot prove other coverage. This approach minimizes additional financial burdens on the borrower.
The Scenario of Refinancing and Increased Outstanding Loan
This situation seems to be missing some critical information. It is based on my personal opinion and is not intended as legal advice. In fact, you may need to speak to a lawyer.
Yes, the bank can force insurance premium with the monthly mortgage payment. However, the specific scenario involves a borrower who refinances their house, which increases the outstanding loan amount. In these situations, the person getting the higher loan amount should have been informed that they would need to have their homeowners insurance increased. Often, this would require an appraisal, but the process can vary.
For example, when we refinanced in late 2021, the appraiser was on-site for about 5 minutes, and one week later, the mortgage company had the appraisal. Our insurance broker then sent proof of the refinance to our homeowners insurer, and we paid the balance of around 400 to the insurance company and provided proof to the mortgage company.
However, if there is no record of you paying homeowners insurance independently, the bank can certainly force a different homeowner insurance plan on you, which is often more costly than your previous plan. The force-placed insurance will be billed at the same time as your mortgage amount.
Even though you were paying homeowners insurance on your own, did you have a policy with an increased value that was effective from the date of the new loan? Did your homeowners insurance policy have a copy of the updated premium amount and carrier name? It should be notarized.
Important Tips to Check Your Paperwork
My suggestion is to go through all of your paperwork, either on paper or online. You need to ensure that the necessary documents are present. You should have the estimated amount, insurer carrier name, and whether you were paying for the insurance independently or through mortgage escrow. These records will help you navigate through any potential issues with homeowners insurance.
By reviewing your documentation carefully, you can ensure that you meet the requirements of your lender and avoid any additional financial burdens that force-placed insurance might bring.