Sep
09

The Bank May Own Your Home, But Don’t Let Them Insure It

By

The Bank May Own Your Home, But Don't Let Them InsureA representative from the Sheriff’s office knocked on the front door, clipboard in hand. She was there as a courtesy, to inform the homeowner that first thing the next morning the sheriff would arrive to move everything in the house to the curb. Barb was being evicted, courtesy of “The Bank”. The homeowner knew the eviction was coming, she just didn’t know when. Filing Chapter 13 Bankruptcy six years previous and jumping through the required hoops, court appearances, and red tape paperwork had not saved her home in the end.

Fifteen years ago, starry-eyed Barb was living the American Dream of Home Ownership the day she signed loan papers and bought her first house. She had a good job as an employee of the state where she lived, earning a decent wage, had a retirement account, some money in the bank, and a savings account. Buying a house seemed like the next logical step, and she took it. The payment was certainly cheap enough, just slightly over $550 a month – monthly rent was more than a house payment! It made sense to buy instead of rent!

Things were good for quite a few years, but due to budget cut-backs, Barb lost her job with the state. The economy was starting to slow down and unemployment was rising. There were suddenly a lot of 30 and 40-something women out there, looking for work. When her savings ran out, she cashed in her retirement account to pay the bills. By picking up work here and there, Barb was able to stretch what money she had saved for retirement and pay bills for two years. Before she did hit that area slightly beyond broke, Barb was able to get a new job with a non-profit agency. She was back to work full time.   Things began to look up.

One day Barb got sick. High health insurance deductibles, co-pays, percentages the insurance wouldn’t pay, lost wages from missed work once the sick pay ran out. Everything began to gather into a perfect financial storm that would culminate in losing her home. Barb had no clue what was coming down the track.

During the time Barb was sick, she missed paying the premium on her homeowners policy. She remembered getting a letter from “The Bank” – it was in a stack of mail that was waiting for her when she returned home from a hospital stay. The letter told her that because “The Bank” had a financial interest in her home, and because the insurance policy protecting the dwelling had lapsed, “The Bank” had purchased a policy to cover their interest in the house. Barb had so many things to worry about that day, she breathed a sigh of relief that catching up on past-due insurance premiums wasn’t such a pressing issue anymore. There was still insurance on the house in case it caught fire tomorrow. “The Bank” was also going to be nice, and add the insurance premium to her house payment. Barb put all worry about homeowners insurance out of her mind at that moment.

Barb got sicker. She was in the hospital again, and again. Bills were piling up, and for some reason her monthly mortgage payment had gone from a tad over $550 a month to almost $900. She didn’t understand what the $400 listed each month in the “Miscellaneous” column was for, and repeated calls to “The Bank” didn’t get any answers.

Things were getting bad financially. The utilities were turned off, but Barb was able to get help from a non-profit agency to turn them back on.  She started selling off her belongings in garage sales, but before long there were too many bills, and there was never going to be enough money.

Barb consulted an attorney, who took one look at her financial situation and advised her to file bankruptcy to stop the collection agencies and save her house.  She filed Chapter 13 Bankruptcy, and was set up with a five year repayment plan.  Barb’s plan was to use this breathing room the bankruptcy would give her to catch up on her past-due mortgage and try to get a handle on her health.

Barb needed help with her with income tax filings. She had been so sick she hadn’t filed anything for a few years, and the Bankruptcy Court and the IRS were demanding tax returns. While looking through her paperwork, I realized what that $400 a month tacked onto her mortgage payment was for: it was the premium for the homeowners policy “The Bank” had bought when her policy lapsed. She had been charged this “premium” for at least two years, perhaps three, which had thrown her into a very deep hole. I immediately called my insurance agent and put him in contact with Barb. He was able to write a policy on her home that cost approx. $100 a month. We were able to get “The Bank” to stop charging her for “The Bank” policy – but the damage had been done. That “past-due balance” hole was pretty deep at this point.

Barb got sicker. Barb had major surgery that required a lengthy hospital stay. She was only home from the hospital a few days when she had a heart attack in the middle of the night. The doctors told her it was a miracle she was able to wake up and get help for herself. Back to the hospital she went, and when she came out a few weeks later, she was permanently glued to a portable oxygen canister. Barb lost her job.

It took about six months, but Barb was qualified for and started receiving Social Security Disability. It didn’t make much difference by that time – her Social Security check is $1100 a month, the mortgage was in such arrears due to the added “miscellaneous” expense and simply not being paid, there was no catching up. Barb could maintain, but she could not catch up.

In May of this year, Barb received a letter from “The Bank”, telling her that her home was due to be sold at a foreclosure sale. “The Bank” bought it at that sale and changed the county real estate records to show they were the owner of record.

Barb started looking around for income based housing, and found out there was a three year waiting list for anything
she could afford. She knew she couldn’t stay in the house indefinitely, but what does a person do in a situation like this? They stay where there is a roof over their head. Last week, the Sheriff’s office representative showed up at the front door, clipboard in hand. When she saw Barb was on oxygen, and was able to see that she was under the care of a doctor, she told Barb to show that documentation to the Sheriff when he did arrive with a crew – it might make a difference, it might not.

Barb was able to work with the sheriff to avoid having her entire household moved to the curb. Friends came with a trailer, and within a few days everything she owned was packed and moved into a friends garage and basement. Within the week, Barb was out of her home of 15 years and living with a friend. She is looking for a rental home she can afford. With only $1100 in disability income a month, it isn’t going to be easy.

This is not an isolated case. “The Bank” that Barb paid her mortgage to is a large, national bank. Last fall, my in-laws stopped by my house one day and asked me to take a look at mortgage papers they had received from their bank – which is a small bank in my hometown. This “hometown” bank has a few branches in neighboring villages, but it is not a large, national bank, nor a large bank chain. My in-laws were attempting to refinance their existing mortgage in order to take advantage of a cheaper interest rate. I knew my in-laws paid their own home-owners insurance, and I knew the local agent they did business with. I was surprised to see a line item in the refinance papers for “home owners insurance”, and the cost: $2000 per year. The current insurance policy with the local agent is around $700 per year.

If your finances deteriorate to the point that you cannot pay the insurance premiums on your home, don’t automatically let the bank buy a replacement policy for you.  Talk to your insurance agent and see what can be done to keep the policy you have now.  If you are signing loan papers, pay attention to every line item in the loan disclosure paperwork and the loan papers themselves. If you see something you don’t understand or do have questions about, ASK. The law requires that your lender give you an answer. Ask questions until everything is explained to your satisfaction. It is your money, make sure you understand the cost.

For those of you that are asking the question, “Does the bank make money on those premiums, is that why they are so high?” The answer is, “Yes, you bet they do.”  Writing that policy to cover that loan through an insurance company (working with the bank for that very purpose) nets the bank a tidy commission.

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