Real Estate Scam?? The New and Different Way Major Lenders May have Ripped Off Homeowners

Once again Bank of America, JPMorgan Chase, Citigroup and Wells Fargo are in prosecutors’ crosshairs. This time, they stand accused by New York State’s Department of Financial Services (NYDFS) of steering homeowners toward overpriced insurance policies on their homes. The concern stems from an investigation into the pricing on forced-place insurance policies, which are policies placed on properties when homeowners allow their own insurance on the properties to lapse. The idea behind forced-place insurance is that if something happens to the home while it is uninsured, the lender will ultimately take the loss because the home is the collateral for the loan. These policies generally do little more than pay off the mortgage in the event of a total loss. However, the lenders also are suspected of “steering” distressed homeowners into costly policies, sometimes that were as much as 10 times more expensive than their original insurance plans.

Forced-place insurance tends to be more expensive than other types of homeowners insurance because homeowners who have missed payments are riskier bets than those that have kept up with their payments and, in addition, generally these policies are incorporated into the monthly mortgage payments rather than being handled separately, which can add maintenance and administration costs as well. However, Benjamin Lawsky, superintendent of NYDFS, believes that the increases in cost may have been “exorbitant” in at least some cases. For example, one homeowner’s policy jumped from $2,000 to $6,000 a year. Lawsky fears that lenders may have pushed hyper-expensive policies in order to maximize the amount of money that they could recover on distressed properties for investors. This would represent a conflict of interest since the banks were assigning the insurance coverage or pushing already-distressed homeowners to agree to it. Lawsky suspects that lenders might also have received kickbacks from insurance companies for sending them clients.

*God Speed*
TLD Investments LLC
tldinvestmentproperties.com

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