If you bought a home with a mortgage, you might have been forced to purchase flood insurance. Oftentimes, lenders require borrowers to purchase more than the minimum coverage, and private insurers can charge higher deductibles. In these cases, the lender may have violated federal law by forcing borrowers to purchase the insurance. But a lawsuit can help you get back the money you paid for your coverage.
Mandatory flood insurance purchase requirement
Lenders are required to require their borrowers to obtain flood insurance for their properties – whether for the initial loan or any increases or renewals. This is a necessary protection for the lender, who cannot simply rely on a private insurance policy for their portfolio. Lenders may be obligated to make this coverage mandatory when extending mortgage loans or refinancing existing mortgages. However, some lenders may not be willing to mandate this protection for their borrowers.
The proposed answer explains that the lender must accept the policy declarations page as documentation that the borrower has obtained flood insurance. It is important to note that the Regulation does not specifically state which documentation is sufficient. Lenders should accept a copy of a flood insurance application as proof of coverage, along with the payment of the premium. These two pieces of documentation will satisfy the requirement for flood insurance. The proposed answer does not state what type of documentation lenders should accept.
Lenders’ right to require more than the minimum amount of coverage
Proposed Q&A Force Placement 14 would clarify the duty of lenders to monitor flood insurance coverage during the entire life of the loan. This can ensure timely force placement of flood insurance and continued coverage, and allow lenders to promptly update their flood maps. This change would make it easier for lenders to comply with federal flood insurance guidelines. In addition, the proposed Q&A requires lenders to follow standard communication practices, and would not require them to send a formal notice before forcing flood insurance.
The proposed answer would eliminate the 30-day waiting period for flood insurance. Instead, lenders would be required to advise borrowers if their flood insurance coverage is insufficient and purchase more flood insurance on their behalf. The proposed answer would clarify what happens if borrowers’ flood insurance lapses, and which documents must be amended to reflect the new policy. The proposed changes would change how lenders enforce flood insurance requirements for new mortgages and refinancing.
Cost of flood insurance
The Biggert-Waters flood insurance reform law was passed in 2012, but it has already led to price increases, and critics say these increases will make flood insurance unaffordable for most people. To find out how much you would have to pay, the agency issued a brief report for homeowners in flood-prone areas. One home that is four feet below base flood elevation would have to pay $9,500 a year in premiums.
The amount of additional premium that Kolbe had to pay is unknown, but the fact that his insurance policy increased by over $46,000 is. The Bank has threatened to purchase additional flood insurance at an extra rate of $237. The extra cost is not enough to make up for the loss, but it would have put her at risk of losing her home if she was unable to pay the additional insurance. The First Circuit found that the costs incurred by Kolbe were sufficient to establish a breach of the covenant of good faith.
