Can You Lose Your Mortgage if Home Insurance Is Cancelled?

Answer

Any mortgage lender worth their salt will insist that you get homeowner’s insurance to safeguard their investment in the property. Should the residence be destroyed by fire, natural catastrophes, or other occurrences, they would suffer less financial hardship as a result of having coverage. When coverage for your house expires, the mortgage lender is informed of the situation, regardless of who is at fault for the situation: you or the insurer not renewing your policy. Always make sure you have enough amounts of coverage on your property to reduce the chances of having insurance imposed on it against your will or losing it to foreclosure.

Tip

In spite of the fact that your lender will initially need you to pay for more costly lender-placed insurance, the final loss of your house to foreclosure may arise from your inability to pay for or maintain coverage.

You Might Lose It

If you let your homeowner’s insurance go without replacing it, you run the risk of technically losing your mortgage. It is written into the terms of every mortgage that if you do not keep up with your insurance payments, you are considered to be in default, and the mortgage lender has the right to foreclose on the property. The likelihood is far higher that the lender will simply purchase insurance on your behalf and add the cost to your monthly mortgage payment. On the other hand, if finances are tight, this might make it more difficult to make the monthly payments and lead you to fall behind on them.

Understand Mortgage Requirements

Your mortgage lender demanded that you have a certain amount of home owner’s liability insurance before they would approve the sale of the property before the closing. Check the mortgage agreement for any particular coverage needs that are mentioned in the document. You are required to keep that level of coverage on the property in order to safeguard the property interest of the mortgage lender. Failing to do so puts you at danger of defaulting on your loan.

Changing Insurance Policies

You have full control over your homeowner’s insurance policy, including the ability to switch providers at any time. There is also the possibility that your insurance provider may choose not to renew your homes coverage. You and your lender will get notification thirty days prior to the loan’s expiry date that it will not be renewed. Immediately purchase new insurance from another provider to take effect on the day when your current policy will be cancelled. After you have obtained new insurance, you are required to provide a copy of the declarations page to your mortgage lender so that they can keep a record of it.

Get a CLUE Report

In a document that is referred to as your Comprehensive Loss Underwriting Exchange report, your history of filing insurance claims is detailed. The insurance company will use this report to evaluate the risk posed by you and will decide whether or not to accept your application based on the results of this report. You may acquire a free copy of your CLUE report once a year from LexisNexis Risk Solutions, in case you are inquisitive about the information that is included in it.

Seek Out High-Risk Plans

If you have a history of filing claims against your homeowner’s insurance policy, you may have a difficult time obtaining new coverage. Fair Access to Insurance Requirements, more often referred to as FAIR plans, are high-risk insurance policies that are available in every state. High-risk candidates who are unable to get insurance from any other source may be eligible for coverage under these programmes. The cost of FAIR policies is often higher, and they provide fewer favourable conditions. To find out whether you are eligible for high-risk insurance, either talk to your insurance agent or get in touch with your state’s insurance commissioner.

Avoid Lender-Placed Insurance

Maintain communication with the mortgage lender throughout the process of acquiring new insurance. Should your lender determine that you are not moving quickly enough, it is possible that they may buy insurance on your behalf. The premiums for lender-placed or force-placed insurance are often five times more than the premiums for standard homeowner’s insurance. It provides conditions that are less advantageous and raises the amount of your monthly mortgage payment. Unless you get in touch with your lender right away and provide them with information about a replacement policy, they will often reinstate this insurance as soon as they get notification that it has been cancelled.

Don’t Let it Get Worse

Allowing your insurance coverage to expire is a technical breach of the conditions of your loan. Your lender may send you a demand letter requiring immediate repayment of all past-due money on your mortgage as well as any insurance costs your lender incurred if you repeatedly let your coverage lapse or refuse to pay for lender-placed coverage. This may ultimately cause your lender to take legal action against you. Now is the time to contact your lender and make arrangements to solve the problems that lead to them sending a letter to call in the loan. You may do this by calling them and explaining the situation. You normally get a grace period of thirty days before the beginning of the foreclosure process. If money has been a problem, attempt to work out a loan modification with your lender so that you can make the mortgage and insurance payments. This will save you from losing the property, which would be quite unfortunate.