By: Trev E. Peterson
Due to the increasing cost of homeowner’s insurance, some borrowers are considering not insuring their homes. Homeowners should be aware that the failure to provide homeowner’s insurance is most likely a default under the trust deed or mortgage securing the loan on the home. If the failure to provide insurance is a default, that default allows the lender to foreclose the lien on the home or to purchase force placed insurance on the home and bill that cost to the borrower as an additional cost secured by the trust deed or mortgage.
If a lender force places insurance, the homeowner does not have the same kinds of coverage provided by a regular homeowner’s policy. The policy limits are generally only enough to pay the lender’s lien on the home and the policy does not generally provide for any liability coverage to the homeowner. So, if a person slips and falls on the sidewalk, the homeowner is not insured for the loss. If the home is destroyed by fire or some other covered casualty, force placed insurance generally dose not cover the contents of the home, or provide the homeowner with any coverage for living expenses while the home is being repaired. The lender also does not have to release the insurance proceeds to allow for the repair of the home—if the loss is more than the coverage, the lender will simply use the insurance proceeds to pay off the loan and leave the homeowner with a damaged home and no funds to repair or replace the home.
Before deciding to cancel or not renew insurance coverage, the homeowner should discuss matters with their insurance agent to determine whether the amount of the coverage could be reduced to save on premiums. Before making any change to the coverage, the owner should check with the lender to determine the minimum insurance requirements for the home loan.