Who pays forced place insurance after short sale closes?

By
Real Estate Agent with Alain Pinel BRE 01367196
http://actvra.in/cXM

REMINDER for all short sale listing agents to make sure that their sellers DO NOT CANCEL their home insurance. Even if the sellers are behind on their insurance payments, they should not cancel it. It could be part of the negotiations with the lender to ask the lender to pay off back taxes and back insurance.

Received an inquiry via Trulia from agent who read my blog about Forced Place Insurance

She asked: "Do you know if my seller is responsible for this bill?"

"Hi I was doing some research on forced placed insurance and ran across your blog. I closed on a short sale and my seller just called me saying she got a bill from an insurance company. She called the short sale negotiator that closed our transaction. He did not know why my seller received this bill either."

Who pays? My initiial thought was that the responsibility rests on the borrower who should contact the bank to negotiate the resolution.

BUT! There are news stories about bank scandals, and they involve Forced Place Insurance

Next Bank Scandal? Forced-Place Homeowners Insurance

BofA Leak Exposes Possible Force-Placed Insurance Fraud

 

WHAT IS FORCED PLACED INSURANCE?

Definition : According to USLegal.com

Force placed insurance is the insurance taken out by a creditor for an uninsured debtor on a property placed as collateral. This refers to the hazard insurance purchased by servicer on borrower's home or property when policy purchased directly by borrower on non-escrow mortgage account has lapsed, or when servicer contends that borrower has failed to provide proof of insurance coverage, or when account is in default. This is a general liability insurance for residential and commercial properties and foreclosed properties.

WHEN/HOW IS IT APPLIED?

Here's a white paper from the Mortgage Bankers Association  who also illustrates the process. Click on the chart to read the white paper.

Note that there is a Notice to Borrower of Intent to Force Placed Insurance --- so this shouldn't be a surprise to the borrower.

 

RELATED POST

Alert the media: Force-place insurance WILL delay short sale

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Ambassador
1,236,975
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale - Probate Specialist

Pacita,  So many sellers doing short sales falsely believe they can stop paying everything and the lender will cover it.  This may or may not be true.  As you say, the best advice is to make sure the sellers understand they need to keep their insurnace current!!!

June 24, 2011 05:02 PM #1
Rainmaker
660,761
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Kathleen -- I had a seller stop the insurance, disconnect the utilities, and removed the built-in stove. It was only through intervention of her sister who is a co-signer on the loan that we were able to prevent the worst. The sister put back an older stove.

For every short sale I list --- I make sure the sellers are made aware of their responsibilities.

Thanks.

June 24, 2011 05:09 PM #2
Ambassador
1,861,469
Judi K Barrett
Judi Barrett~Integrity Real Estate Services~Idabel, Oklahoma - Idabel, OK
Broker/Owner, Integrity Real Estate Services -IDAB

Pacita,

Every seller involved in trying to short sale their home needs to read this or be told by their agent.  You are doing a great job y informing all of your sellers of their responsibilities.  If all agents did as you are doing, we would have less problems with this.

June 24, 2011 09:01 PM #3
Rainmaker
660,761
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Judi

Thanks for your kind comments. Asking about insurance and utilities should be on our checklist when interviewing potential short sale sellers. If they don't know now, they will know when we conclude the interview.

 

June 24, 2011 09:59 PM #4
Rainer
210,274
Tim Peterson
Wisconsin Realtor Safety and Concealed Carry Classes - Madison, WI
Realtor Safety Training Classes

Hi Pacita great post explaining Forced Place Insurance. I asked another agent about it and they did not even know the term--thanks

June 26, 2011 12:25 AM #5
Rainmaker
660,761
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Tim --- you won't want to experience the mess when a client cancels his home insurance while you're going through a short sale. No one is going to be happy --- not your seller who may be have to repay the bank, not you because your client is going to yell at you. Your client thought that when they do a short sale the bank pays for all their selling costs. And when they get the bill, they'll want to know wh.

Don't let it happen to you or your clients.

June 26, 2011 12:54 AM #6
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Rainmaker
660,761

Pacita Dimacali

Alameda/Contra Costa Counties CA
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