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
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.