What happens financially if your highly mortgaged house burns down, and you don’t have insurance?
Naturally, the buyer would lose any equity in the home, but consider that there was no equity b/c the home had been mortgaged 2 or 3 times.
The lender can’t possibly verify that every home it mortgages is insured every month. So how do they protect the property that they basically own (especially all these empty foreclosed homes)? Or do they just eat any loss, hoping that most people are insured?
Are homeowners required by law to have homeowners insurance? If so, what are the criminal or civil penalties for non-compliance? (if the lender sued and won, the debtor would likely just file bankruptcy and get a discharge)
Yes, the lender CAN possibly verify that every home it mortgages is insured. As a mortgagee, they get a copy of the cancellation declarations, when it cancels.
The forced placement coverage actually is written on a ‘reporting form’. What that means, is effectively they go back and retroactively insure the house – and charge the homeowner for the premium. Now, if that house burns down, the homeowner is still “on the hook” for the loan balance – the insurance won’t pay the homeowner, and doesn’t pay to fix the house. It ONLY pays the lender.
But most house fires aren’t total losses – only partial losses. So the homeowner now has a huge mortgage and a huge repair bill on that house.
No, homeowners aren’t required by LAW to have homeowners insurance. The mortgage contract they agree to, requires them to have HAZARD insurance on the property, which is NOT the same thing as homeowners. Homeowners insurance is just the cheapest, best type of hazard insurance to buy. So as soon as the mortgage agreement is signed, they’ve CONTRACTUALLY agreed to carry homeowners insurance.
Who Caused The Mortgage Meltdown
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