Insurance Needs during a Foreclosure

If you’re facing foreclosure, chances are good that you have many worries on your mind. After all, you stand to lose the home that you’ve worked so hard to keep. In addition to the psychological and physical disruptions that your foreclosure is likely to cause for your family, you’ll have plenty of financial issues to keep straight as well. One that is often missed is your Home Owners Insurance.

Most Homeowners and homeowner’s insurance companies bundle their policies’ premiums in with their holders’ mortgage payments. Then the insurance policies premiums are paid from an escrow account. Once you’ve stopped making your mortgage payments, it’s likely that your lender will stop paying your policy once the escrow amount is depleted and place their own policy on the property.​

If you’re resigned to the fact that you’ll lose your home in foreclosure, you might be comfortable with this arrangement. After all, it will remove a significant financial burden from your shoulders and force your mortgage lender to take responsibility for your home.
According to Joe Weiler, A representative for Country Financial Insurance, “There are several reasons why this is not a good idea for the Property owner. There are Three main components to any Homeowners Policy, Structural, Personal Liability and Personal Possessions.”​

If your policy lapses and the lender places insurance on your property this only covers the Structural aspect of the policy and is typically more expensive. This lender placed insurance does not protect the Homeowner from a personal liability lawsuit or any of their possession in the house.​

If you wish to fight your foreclosure proceedings, you will eventually “reaffirm” your mortgage. This will require you to pay off the loan’s delinquent balance and the cost of the lender placed insurance since it has been added to the outstanding amount owed.

Also, If lender place insurance was purchased by the lender, Once you work out the payment with the lender, you will have to seek another homeowner’s insurance policy and it is possible you will have to pay a hefty premium for your coverage. After your policy’s cancellation, it’s unlikely that your current provider will take you back without raising your premiums by a significant margin. Likewise, other insurers might view your brush with foreclosure as a major risk factor and charge you accordingly.

​So what is the best course of action?

​Mr.Weiler recommends, First, If you are having an issue, contact your Insurance agent immediately and explain the situation to them. Together you can come up with a strategy to ensure that you and your possessions are protected through the process whatever the outcome.​

Second step will be dictated by your goals for your property, But in most cases it would be in your best interest to continue paying your insurance premiums yourself directly to the insurance company if at all possible, But this decision is best made with the advice of an insurance agent that you know and trust.​

The ins and outs of homeowners insurance (during foreclosure and otherwise) can be tricky. Luckily, you don’t have to figure it out on your own. Give Joe a call for a No Cost planning session into your insurance and retirement needs, at (847) 223-9900 or visit him on the web for information about your all insurance and financial planning needs.