Force-placed Insurance is also known as lender-placed Insurance. The right to place Insurance is a right borrowers give up by contract. If borrowers fail to keep Insurance in place on mortgaged property, they give lenders the right to place Insurance on the property and send the Premium bill to the borrowers.
There are apparent problems in practice with how lenders exercise lender-placed Insurance rights. At least in New York State, there is reported evidence of scams to direct placement of that Insurance to selected companies for higher Premiums. Sometimes, there is evidence of kickbacks and added fees for Reinsurance to protect these Insurance Companies but not the borrowers of course, in New York State. See Liz Rappaport and Leslie Scism, "Insurers Facing Greater Scrutiny" p. C1, col.6 (Wall Street Journal, Thursday, April 5, 2012).
Although there is a reported ongoing investigation of underway in New York State, the exposure of Insurance Companies issuing the lender-placed Insurance is said to be particularly high in Florida in part because of the high number of Florida Foreclosures. Id.
If a borrower gives up a right to place Insurance on mortgaged property, it seems that at least arguably, lenders should, do or may have a corresponding Fiduciary duty of Good Faith in the exercise of that right and to Deal Fairly with the borrower who not only has given up the right exercised by the lender, but pays the bill for the Insurance product selected by the lender.
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