Home Foreclosures: How To Protect Your Home During Foreclosures

January 31, 2009

America is going through a foreclosure meltdown which will only get worse in the short run. Tens of millions of loans are in default, and the lenders either have foreclosed or are in the process of foreclosure.

However, there are some very real issues that you need to deal with during a foreclosure. Failure to address these issues could result not only in you losing your house, but being caught uninsured at the time of a disastrous loss, like a house fire.

Stated another way…what would you do if you had a major fire, wind or water loss during a foreclosure? Are you sure you’re covered?

First, let’s look at homeowners insurance and your loan escrow account.

If your homeowners insurance is being paid by your lender through an escrow account, that’s fine. However, if your loan is in foreclosure, you cannot be sure that the premium is being paid by that lender. If you have stopped making loan payments, you have also stopped adding money to your escrow account. Your homeowners insurance could have lapsed for non-payment.

So, the lender will “force place” a policy covering your home, but only for the loan balance, and charging it against your loan amount. But that policy will only cover the dwelling, no contents or liability coverage. The lender is only interested in protecting their loan.

But, sometimes, lenders make errors and premiums don’t get paid. So, your strategy to protect yourself is to make sure that the premium on your homeowners insurance is paid, even during a foreclosure.

But I recommend that you keep the policy in place just a little while after the foreclosure has been completed. Why?

Because we’re now learning that many foreclosures are being done without proper documentation by the lenders. Some highly placed politicians have noticed this, and are starting to make waves.

Rep. Marcy Kaptur (D- Ohio) is the senior woman in the House of Representatives, and the longest serving Democratic woman in House history. Her district includes Toledo, which these days is looking more and more like a ghost town.

Kaptur has recently been seen on CNN, promoting the “Produce The Note” initiative. In a recent interview, she stated that many mortgages have been sold and re-sold numerous times by lenders. She said that a lender who is foreclosing may not even possess the original loan document with the borrower’s signature on it. The biggest problem is that because more than one lender has owned your loan, more than one lender could foreclose on you for the same loan. It’s already happened many times.

There’s a great website called Consumer Warning Network that shows borrowers how to fight back.

Go to: Consumer Warning Network

Don’t just willingly accept that your lender did the foreclosure correctly. Investigate and fight back! Your financial future could be at stake!

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Mortgage Escrow Accounts: Could Mortgage Escrow Accounts Cause Your Financial Ruin?

November 21, 2008

The answer is “YES!” unless you follow my strategies shown below.

I learned first hand about mortgage escrow accounts back in 2003-2005 when I was working as a Claims Examiner for a huge insurance company. Their product was Forced-Placed Hazard Insurance, which is a property insurance policy sold to mortgage companies.

Here’s how it works when YOU choose your homeowner’s insurance and pay it through your escrow account.

When you buy a home, part of your closing costs customarily is the first premium payment for your homeowner insurance. After that, the insurance company sends their bill to the mortgage company. Part of your monthly house payment pays 1/12 of your annual homeowners insurance premium. The insurance company is sure to get their premium paid as long as you (a) have an escrow account, and (b) as long as you own the house, and (c) as long as you keep making your monthly house payment.

But there are BIG, BIG problems with mortgage escrow accounts. These problems are happening with much greater frequency than just a couple years ago. Foreclosures are only PART of the problem, and that’s a topic for another article.

“Forced-Placed” coverage nightmares

Pull out your file for the closing on your house. In the mortgage, there is a clause that allows the lender to buy a “Forced-Placed” insurance policy on your house if the insurance is cancelled for any reason. So, if you are a homeowner, and your policy gets cancelled for any reason, the bank will pay the premium for you and charge it to your escrow account.

Sometimes, the mortgage companies sell their mortgages in big portfolios to other lenders. When that happens, the buyer gets all of that escrow money, too. In the confusion surrounding the sale of those mortgages, and the time it takes to do the deal, the buyer sometimes fails to make premium payments on time. When that happens, some policies occasionally get cancelled.

Sometimes, lenders just screw up and forget to make premium payments…even when the money is in the escrow account and it’s no fault of the homeowner. And sometimes the lenders fail to notify the homeowner that they have no insurance. The homeowner finds out when they have a claim.

Sometimes, people don’t automatically renew their policies that are in escrow, and the policies cancel.

Sometimes, insurance companies cancel homeowner policies, and the insurance companies send the cancellation notices only to the lender, and the homeowner never knows his policy was cancelled. The homeowner finds out that things have changed when he has a claim.

In each of these examples, the home ends up without insurance coverage. Banks and mortgage companies do not like having loans on properties without insurance. If the house burns down, so does their equity. That’s the reason for “Forced-Placed” policies.

The BIG problem…the HUGE problem for YOU…the homeowner…is that the bank only cares about THEIR MONEY. They don’t care about you, the contents of your home, your legal liability, or where you’ll live if you have a fire and can’t live in that house. They usually only write the “Forced-Placed” policy for the unpaid balance of the loan.

Lenders don’t care about the replacement cost of your property. Forced-Placed coverage usually only covers the outstanding loan balance on your mortgage. So, if you had a house worth $150,000.00, and a loan balance of $50,000.00, the lender would buy a policy for $50,000. The lender only cares about getting the loan paid off.

What if your house is worth $150,000.00, and your loan balance was only $50,000, and you have a total loss fire with their coverage?

You are going to have a very bad, life-changing experience, that’s what!!

Normally, your property insurance covers your liability. Lenders don’t care about your liability exposure. They don’t care if a delivery man falls on your property and sues you for six figures. Forced-placed coverage only covers the outstanding loan balance on your mortgage. There is no liability coverage.

Another very bad, life-changing experience.

Normally, your property insurance covers your contents…your personal property, like your furniture and other belongings. Lenders do not care about your contents. They don’t care if everything you own is destroyed. Forced-placed coverage only covers the outstanding loan balance on your mortgage. There is no contents coverage.

Another very bad, life-changing experience.

Normally, when a homeowner buys insurance to protect his home and contents, the policy also has coverage for Additional Living Expenses. Lenders do not care if you are forced out of your home because something happens that makes your home unfit to live in. Lenders don’t care if you have to live temporarily in a homeless shelter. Forced placed coverage only covers the outstanding loan balance on your mortgage. There is no ALE coverage.

Another very bad, life-changing experience.

Also remember that the LENDER owns the forced-placed policy on your property, not you. The settlement checks will go to them, or perhaps made payable to the lender and you. But they usually won’t let you cash the check.

When I worked for that insurance company, I regularly talked to people who said that the first time they were aware of the forced placed policy is when they filed a claim. Their old insurance company sent the premium notice to the lender, who missed the premium due date, and the policy cancelled. The lender then forced-placed a policy on the property.

So, what do you do if this happens to YOU?

One of these scenarios will explain your situation:

1. You were negligent, and allowed your policy to lapse. It’s not the lender’s fault. The insurance company notifies the lender of the cancellation date. The lender forced-placed a policy for the loan balance. You have a claim.

What do you do? Go to the website for the author, found at the bottom of this article, to learn how to take control of your claim. Then, as soon as the claim is completed, buy your own policy and cancel the one the lender owns. Just make sure that you have coverage IN PLACE before you cancel the lender’s policy.

2. The lender was negligent, and allowed your policy to lapse. Then, the lender force-placed a policy for the loan balance. You have a claim.

What do you do? ALERT!!!! Get an attorney involved IMMEDIATELY!! Don’t wait!! Don’t try to be a nice guy!!

Get your documentation in order. Make sure that you can prove it was the lender’s fault that the premium was not paid. Next, have your attorney call the person at the lender who manages the Escrow Department. Explain what happened, and ask them what they plan to do to make things right. If they fix the problem and you don’t suffer any loss from their negligence, then all will be well.

How does the lender fix the problem THEY created?

The bank could contact your insurance company and accept liability. Many times, the insurance company will allow the bank to make the premium payment and reinstate the policy. Once that’s completed, you can proceed with your claim based upon the insurance policy that you did have before the cancellation.

The lender could accept liability and pay your claim out of their own pocket. You’ll usually see donkeys flying around outside your house right before this happens.

If the insurance company will not allow the policy to be reinstated, then you must seek damages from the lender itself. Your attorney must file a lawsuit against the lender.

Watch this carefully!!

1. If you have an escrow account through your mortgage lender, make sure that your homeowners insurance policy is in force at all times.

2. Call your homeowners insurance company, and make sure that they are sending renewal notices and premium notices to you, not just your mortgage company. Too many mistakes happen too frequently to trust your mortgage lender to take care of your business.

So, you cannot afford to place all your assets and your property at risk by trusting someone else to handle your money for you. You cannot just pay your monthly mortgage payment and forget it.

The strategy is to make CERTAIN that your escrow account keeps your Homeowners insurance policy in force AT ALL TIMES!

This strategy ALONE could save you, the homeowner, hundreds, perhaps many thousands of dollars of insurance benefits.

Final, final thoughts! Your mortgage contract probably states that the mortgage company will replace your coverage in the event of the cancellation of your insurance coverage. However, if the mortgage company force-places an inferior policy, a true “replacement” of coverage has not occurred. Point this out to your attorney. You might have a very compelling cause of action against the mortgage company!!

Check out: http://www.insurance-claim-secrets.com