A warning for borrowers
The other morning I got an alarming call from my insurance agent. He said my homeowner’s policy was 10 days away from being canceled. Why? Because the mortgage company hadn’t paid the premium, something I thought was an automatic process that didn’t require any action, or thought, on my part. Needless to say, I had to get this straightened out right away.Thanks very much for sharing, Scott. Glad the problem seems to be on the mend.As soon as my agent shared the news, a little light bulb went off. My mortgage had been bought a few months earlier by another mortgage company. Maybe, I figured, there had been an oversight in the handover. Indeed, that’s more or less what happened. I raced home, where I happened to have a cancellation letter waiting in the mail. Then I called the new mortgage company and to my surprise got a human being on the line in seconds. She told me there was no automatic provision for the premium to be paid. Apparently, my new mortgage company’s “welcome letter” told me this, but I had neglected to read that letter.
Fortunately this was an easy problem to fix. The woman at the mortgage company gave me a fax number where the agent could send the insurance bill, and my agent sent off the fax. The woman at the company assured me the premium would be paid well before the cancellation date. (I’ll be checking.) And not to worry, she said, my property tax payments would be paid automatically.
To me the obvious lesson is this: Double-check that the mortgage company pays the homeowner’s premium (and property taxes) from escrow, particularly if the mortgage trades hands, as commonly happens these days. And take a minute to read all welcome letters, no matter how boilerplate-y they seem.
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Comments
Thats not the only problem you can have. I pay my own insurance and taxes. My mortgage was taken over by another company who sent me a notice saying that since they werent notified of my homeowner's policy being paid that they had taken out another policy for me with another company that they were nice and cozy with and sent me my first bill. My agent said that she faxed them the policy and that they say that they have changed the number as an excuse for not getting it. The mortgage company then splits the profits with the insurance company, all the time while you are double covered. I refinanced before I had to pay anything, and my current company doesnt hassle me. I do keep getting offers from an insurance company that says that they will pay my mortgage if my house burns down, and they are connected to my current mortgage company. It is an easy buck for the insurance company. It is rare that anyone's house burns down. What they dont tell you is that if your house does burn down, your current homeowners policy pays for you to live somewhere, so you are still only paying once and living in one place. That is if the insurance company doesnt declare your fire to be arson, in which case they wont pay.
Posted by: Clay | May 19, 2010 11:27 AM
Conceding that companies too big to fail are also often above the law, buried within every escrow agreement I've ever seen is essentially a responsibility clause that places any penalties for missed or late escrow payments on the lender. Additionally, it is both a matter of public policy and included within every agreement that your lender can't change any terms of your loan (such as responsibility to escrow) when transferring the loan to a new servicer.
Posted by: Josh | May 19, 2010 2:33 PM
Does the insurance and tax payments HAVE to go thtough the mortgage company? Can't the homeowners choose to make payments themselves? I'm not familiar with the process...
Posted by: Jelena | May 19, 2010 3:02 PM
With a 20% down payment you have the option of making those payments yourself. Anything less than that and escrows are required.
Posted by: Josh | May 19, 2010 5:21 PM
You might have an option for an escrow waiver so you can pay it on your own, but unfortunately you will either get a higher rate or be charged an extra .25 points in fees. Also, escrow is required for all FHA loans.
Posted by: Frank Rizzo | May 19, 2010 10:51 PM
Just wanted to say that all of this information has been really helpful. I recently bought a rowhouse in the city and I had some questions on this topic; now they've been answered. Thanks wonk!
Posted by: Medfielder | May 20, 2010 8:32 AM
Glad it helped, Medfielder. Thanks to all you Wonk readers who chime in with answers as well as questions.
Posted by: Jamie Smith Hopkins | May 20, 2010 9:02 AM
@Clay: My mobile home mortgage was sold, and the new mortgage company actually waited a couple of years before hitting me with that scam... but once they started, it became an annual rite. Every year it got harder and harder to get them to "receive" a copy of the policy I'd had with the same company since the day I bought the house -- excuses included "wrong mailing address" (it changed in the 2 weeks since you sent me the notice? balderdash!) and "fax didn't come through" (guess the number was wrong too?) -- I felt horrible having to bug my agent to send them paperwork again and again. I think she finally called and got a more "current" address, and put them on notice that it would be arriving with a return receipt. Miraculously, that copy did not get lost.
In the meantime, they were all too happy to force me into a higher-premium, lower-coverage policy from their affiliate.
Luckily, there wasn't much balance left on the mortgage, and we were able to move funds from elsewhere to pay it off. KMA, GreenTree! Few things in life have given me as much pleasure as sending that final check.
Jamie, if you're ever at a loss for a story topic, maybe that's an idea? I thought that scam was unique to mobile home mortgages. Unless Clay is also a mobile home owner, it seems the problem is a bit more widespread.
Posted by: serial homeowner | May 23, 2010 9:26 PM