Sokolove Success Blog – Our Perspective on Legal News that Matters

As Congress contemplates far-reaching reform of Wall Street and the unscrupulous practices of some of its large financial institutions, attention should be focused on the unacceptable risk that these banks took and the lack of federal regulation that made it possible.  But while we look at the big picture, we should also keep our eye on some of the lesser known yet equally egregious practices engaged in by some major players in the financial industry.

A good example is forced placed (or “lender-placed”) insurance.  When a homeowner takes out a mortgage, the bank rightly requires the borrower to adequately insure the home.  The bank wants to make sure that its collateral is protected.   In the event that a homeowner allows the policy to lapse, the lender has the right to force place an insurance policy. Sounds reasonable, right?

Not exactly. Some lenders have taken advantage of this contractual right and turned it into a predatory practice. For example, a lender may hook up with a chosen insurance company or an affiliate firm to force place these policies on borrowers. These unilaterally imposed policies often provide less coverage to homeowners at a cost of up to several times the market rate for a competitively sought policy.

What’s worse is that in some instances lenders may force place policies even when the homeowner has adequate insurance coverage and has provided proof of it to the lender.

Consumers are understandably fighting back.

In January 2008, three affiliates of Countrywide Financial Corp. were hit with a proposed class action accusing them of forcing their own insurance on Florida borrowers who were already properly insured.

In January of this year, Law 360 reported on a pending California class action involving as many as 625,000 homeowners who are bringing claims against American Security Insurance Co. for fraud and unfair business practices in connection with forced-placed insurance policies.

We are currently investigating similar claims. If you are pursing these cases or have an in interest in doing so, I’d like to hear from you.