If you've never heard of force-placed insurance, consider yourself lucky. If everything goes perfectly with your home and mortgage, there's a lot you'll never hear much about, like default, deficiency judgment, request for modification assistance, or deed in lieu of foreclosure. But things don't always go perfectly, and a lot of things that used to be rare are more common now because of the housing market crash and recession.
What Is Force-Placed Insurance?
Force-placed insurance (also called creditor-placed or lender placed) is an insurance policy a lender or loan servicer places on a property when the owners' insurance is insufficient or nonexistent. The lender does this not to protect your investment, but theirs. Without insurance, a fire, flood, or accident could cause damage to or destroy the property, and it wouldn't be covered. A home is worth too much, and insurance is required, so the lender will get coverage if you don't.