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Friday, April 19, 2024

Mortgage lenders are placing compulsory insurance for uninsured homes

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Homeowners left uninsured in the wake of California’s insurance crisis are being forced to buy insurance by mortgage lenders, as they refuse policy renewals or withdraw from the California market entirely.

NBC LA highlighted the case of Simi Valley homeowner Lloyd Messineo, who was recently denied policy renewal and faced exorbitant monthly premiums due to his mortgage company’s insistence on insurance purchase owing to delays in enrolling in the state-run Fair Plan.

Homeowners in wildfire and flood-prone areas are seeing a surge in denials of policy renewals. A view of a neighborhood in Studio City, where 26% of all homes are in wildfire-risk areas. [Naki Park, The Korea Daily]

He was recently notified by his insurer, Farmers, that it could no longer provide coverage due to the risk of wildfires. “There have been three fires in the neighborhood in the last 24 years, and nothing got close to us,” Messinio said. His house had a cement tile roof and screening in the vents to prevent sparks from entering.

As a last resort, Messineo applied for the Fair plan, which includes fire insurance, although more expensive and offers less coverage.

But the process took weeks, and in the meantime, his existing farmer’s insurance lapsed and his mortgage lender enrolled him in a $2,700-a-month force-placed insurance policy.

“Why do I have to pay for the broken system?” said Messineo, adding “Over three months to get approved for what should have been a two-day process.”

Conditions of a mortgage loan state that if a homeowner fails to maintain insurance, the bank or mortgage lender may require the homeowner to purchase mandatory insurance to protect the collateral (the home).

The premiums are often more expensive than if the owner were to shop for a policy on their own, as the bank’s priority is to protect the collateral, and failure to pay can result in foreclosure.

Amy Bach of the consumer advocacy group United Policyholders said FairPlan hasn’t kept up with demand. According to Bach, the number of new applications for the Fair Plan has tripled in the past five years to 4,500 per week, leading to complaints like Messineo’s.

However, some homeowners are turning to mandatory insurance as an alternative, depending on their circumstances.

“If you can’t find a company that’s willing to provide insurance services, compulsory insurance can solve your insurance problem,” said Marc Jung, CEO of MJ Insurance. “Also, because premiums have skyrocketed, some homeowners may find that compulsory insurance is cheaper, so we advise them to compare which would be a better option.”

Fair Plan says it has recently expanded its staff to reduce delays and is committed to ensuring residents have access to basic home insurance coverage.

Ricky Choi, senior advisor at IOA, said, “Home insurance premiums in natural disaster risk areas, such as wildfires, earthquakes, and floods, are soaring, and renewals and cancellations are increasing, which means that the number of uninsured is expected to rise.”

BY NAKI PARK, HOONSIK WOO  [park.naki@koreadaily.com]