Force-Placed Insurance: The High Cost of Servicer Errors

“Force-placed” or “lender-placed” insurance is one of the most abusive practices in the mortgage industry. It occurs when a servicer claims you do not have valid homeowner’s insurance and purchases a policy for you—often at 2x to 4x the cost of a normal policy—and charges it to your escrow account.

When Is It Illegal?

Under RESPA (Regulation X), a servicer cannot force-place insurance unless they have a “reasonable basis” to believe you are uninsured.

1. The “False” Lapse: Often, you do have insurance, but the servicer failed to process the renewal notice or ignored the proof you sent them.
2. The Kickback Problem: Historically, servicers often bought these expensive policies from affiliated insurance companies, effectively profiting from their own incompetence. While regulations have tightened, the incentive to force-place remains.

The Notice Requirement

Before charging you, the servicer must send two written notices:

• 45 Days Before: A notice stating they don’t have proof of insurance.
• 30 Days Before: A reminder notice.

If they charge you without these notices, or if they charge you after you provided proof of coverage, they have violated federal law.

How We Fight Back

If you have been hit with a force-placed insurance premium:

1. Send Proof Immediately: Send your “Declaration Page” via Certified Mail to the NOE address.
2. Demand a Refund: The servicer must refund all force-placed premiums for any period where you had your own coverage.
3. Litigate: If they refuse to refund the money or correct the escrow shortage caused by the expensive premium, we can sue under RESPA to recover the financial damages and statutory penalties.