Force-Placed Insurance
What Does Force-Placed Insurance Mean?
Force-placed insurance is an insurance policy that a lender purchases on a property if the property owner’s insurance has lapsed or been canceled. Property owners are required to maintain adequate insurance to protect their property, ensuring that the mortgage holder’s or lender’s interests are safeguarded in the event of property damage. Since the property serves as collateral for the loan, the lender has a vested interest in protecting it. If the property owner allows their insurance to lapse or if the insurance is deemed insufficient by the lender, the lender can purchase force-placed insurance at the homeowner’s expense.
Force-placed insurance is also referred to as forced-place insurance, lender-placed insurance, or creditor-placed insurance.
Insuranceopedia Explains Force-Placed Insurance
Force-placed insurance has gained significant media attention in recent years due to its high cost compared to insurance available on the open market, as well as its limited coverage. For example, personal property within the home and owner liability are not covered under force-placed insurance.
In most states, lenders are required to send two notices to the homeowner before purchasing force-placed insurance. These notices must inform the property owner of the reasons for the potential purchase and provide instructions on how to resolve the issue. The second notice must be sent at least 30 days after the first, and the force-placed insurance cannot be purchased until at least 15 days after the second notice is sent.
Insurance regulators in some states have investigated the apparent increase in the use of force-placed insurance, and class-action lawsuits have been filed against certain banks over their practices. For example, in Hofstetter v. Chase Home Finance, LLC, 751 F. Supp. 2d 1116 (2010, United States District Court, N.D. California), an opinion was issued prior to trial, and plaintiffs later recovered some money at trial.
