The real estate market is in a very difficult period right now. Prices are down, inventory is up and lenders are tighter with a dollar than they have been in the entire 21st century. Don’t allow the market to cost you more due to a lapsed insurance policy. As it relates to insurance, homeowners who allow their insurance policies to lapse can have two big problems.

The first and most obvious is that if a catastrophic event occurs and there is a substantial loss due to fire or some other catastrophe, you could lose the home you live in. If this occurs, not only will the insurance company not pay you for the loss, you will have to continue to make your mortgage payment to the lender. If you fail to do so, you will very likely lose the property to foreclosure and have to deal with all the credit issues related to it on top of the loss of whatever equity you have.

The second problem is known as a force-placed policy of insurance which a lender can initiate (at your expense) if your policy lapses. Lenders have a right to protect their investment. In most real estate loan documents there is a provision that if the mortgagor (the person who pays on the loan) allows their policy to lapse, the lender is permitted to initiate an insurance policy which will pay them if your home suffers a catastrophic event. You’ll get none of that settlement. However, your loan documents require you to pay for that coverage. The real ugly part of this is that force-placed policies cost two to three times what your regular policy costs.

Force-placed policies come at a very high premium and the homeowner has to pay for it according to the terms in your loan documents. So, this blog is simply a reminder to remind homeowners and agents of some of the underlying financial risks should a homeowner policy expire.