Sneaky Mortgage Tactic Finally Challenged by $300 Million Lawsuit

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Mortgage insurance exists to protect you, right? Not if you’re one of the thousands of mortgage borrowers who have paid into what’s called “force-placed insurance” and been charged with unfair premiums as a result. It’s a topic that’s taken the spotlight due to a multi-million dollar lawsuit against Chase, who has been a prominent enforcer of these force-placed policies. A recent ABC article shared some of the changes to come for these high cost insurance policies and what borrowers impacted by these policies can expect.

What is “force-placed insurance”

If a mortgage borrower fails to renew their insurance premium or doesn’t have what’s deemed as adequate hazard insurance, the lender steps in and buys insurance for them. This is what’s called force-placed insurance. Essentially, it’s a policy that’s implemented by the lender in order to make sure that the borrower is insured and that the lender remains protected from any damage to their collateral (the house). The cost of the policy is then added to the mortgage loan tab. Sounds (fairly) reasonable, right? Unfortunately, these types of policies carry much higher premium rates than normal insurance policies. This means that borrowers are “forced” into a high cost insurance policy which can be devastating for those who are already struggling financially.

Why Chase is in the hot seat

In order to protect borrowers from these high rates (and from being pawns in potential schemes abusing the system) a class action lawsuit has been charged against Chase – one of the larger banks to implement these forced-place insurance policies. In addition to assigning the high rates of these policies, the bank has been charged on suspicion of taking kickbacks from the insurance companies where these policies are sourced. The lawsuit is intended to settle the unfairly high costs of the force-placed insurance and to reimburse some of the borrowers who were met with financial hardship as a result (in some instances, those impacted were faced with foreclosure and lost their homes). It’s the first of what will likely be many lawsuits against unfair insurance practices that push home-buyers to the brink of their financial security.

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What this means for the nearly 750,000 mortgage borrowers impacted

Luckily, steps are being taken to prevent the conflict of interest that exists when lenders benefit from pushing these forced-rate plans onto consumers. The $300 Million lawsuit is more than a stern warning to Chase – it’s an indication that other banks may soon be charged with similar allegations. In addition to the settlement, Chase is also forbidden from collecting any interest on the force-placed insurance policies for the next 6 years. That means the only money they can collect from anyone who finds themselves holding these types of policies will be base premiums and/or attached protections – not interest.

Up to 750,000 mortgage borrowers may have been impacted by unfair implementation of force-placed insurance policies and therefore eligible for compensation. Via ABC, “…payments to affected mortgage borrowers will be equivalent to 12.5% of the net premium.” Though not a comprehensive refund, it’s still some respite for those affected.

What to do if you believe you’ve been unfairly targeted with force-placed insurance policies

If you qualify as one of the many impacted by this settlement (ABC reports anyone charged by Chase for these insurance fees between Jan. 1, 2008, and Oct. 4, 2013 may be eligible) you’ll have to file claim forms in order to collect your compensation.

And in general, if you believe you’ve been unfairly charged with force-placed insurance, you have a right to argue against the rates. If you can prove that you have coverage that adequately protects against the required hazards, then the lender is obligated by law to cancel the forced insurance and also refund any overlapping coverage costs.

For more information about obtaining and pay off mortgages, take a look at our Mortgage Resource Center.

Image credit: gunnar3000

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