Many times, either before or during the foreclosure process, the homeowner's insurance policy lapses, and the bank usually sends notification that unless the policy is renewed or replaced, it will purchase forced placement insurance to protect the bank's interest in the property. More often than not, such notices are ignored and the bank buys such insurance which is usually much more than the cost of the homeowner's original policy. In addition to the significantly higher cost in the premium, the cost is passed to the homeowner. Additionally, this forced placement insurance may not protect the homeowner from personal liability. For instance, if an injury were to occur on the mortgaged property then the forced placement policy may not insure the homeowner against a potential lawsuit. Furthermore, if there is any damage to the mortgaged property, the homeowner also may not be entitled to anything since the s/he may not be deemed an insured under the policy. Homeowners should seriously consider keeping the insurance current otherwise they may have big problems down the road. Homeowners in foreclosure should review their insurance policies and make sure they are covered. Recently, there have been some class actions against banks for purchasing forced placement insurance that did not insure the homeowners. Some of these class actions have resulted in large settlements and many affected homeowners have received notifications to join in the class action; however, these homeowners should seriously consider speaking with an experienced attorney before deciding to join the class. Joining the class in return for a small monetary award could backfire. This recommendation applies to any class action involving a bank. Speak to an experienced attorney before making any decision.
Arnold M. Bottalico is an experienced Long Island, NY foreclosure attorney with over 25 years of experience, and he welcomes your questions and comments.