When a home buyer takes out a chattel loan or a conventional mortgage to purchase a manufactured home, the lender can require the borrower to maintain adequate homeowners insurance over the life of the loan.
Additionally, the lender can stipulate the level of coverage, which is often identical to the loan amount. This provision allows the lender to protect his financial interest in the collateral of the loan against different insurable perils.
If the borrower fails to carry adequate insurance coverage on his or her manufactured home, the insurance clause specified as part of the terms and conditions of the loan gives the lender the right to purchase a homeowners insurance policy on behalf of the homeowner and bill the borrower for it. This type of insurance is commonly referred to as lender placed or force placed homeowners insurance.
It’s important to note, however, that not all manufactured home lenders include this provision in the terms and conditions of the loans they issue. But as force placing insurance has become a common practice within the mortgage industry, homeowners need to be aware of it. It is for this reason the current blog post looks at some important aspects any manufactured homeowner should know before applying for a manufactured home loan.
Common Circumstances when Lenders Might Enforce Force Placed Insurance
A manufactured home lender can force placed homeowners insurance when:
- The type and/or level of coverage doesn’t meet his requirements;
- The manufactured homeowner hasn’t provided proof of coverage; in this case, the lender can opt for forced placed homeowners insurance even though the homeowner has coverage in place;
- The policy is canceled for non-payment of premium;
- The policy doesn’t show the lender as the mortgagee;
- The manufactured homeowner hasn’t purchased homeowner's insurance or has failed to renew it on time.
Although a manufactured home lender has the right to enforce force placed insurance in any of these situations, he must provide notice of the intent to purchase forced placed homeowner's insurance at least 45 days before ordering the policy, followed by a 15-day reminder notice, 30 days after the first letter. The manufactured homeowner can provide proof of insurance coverage until the end of the 45-day period to avoid the force placed insurance by the lender.
Lender Placed Homeowners Insurance Is Undesirable for Borrowers
There are two main reasons why forced placed homeowner's insurance is undesirable for a manufactured homeowner. First, it is usually more expensive than regular homeowner's insurance, particularly because this type of insurance is considered riskier. As a result, the monthly loan payment will increase substantially.
Second, forced placed homeowner's insurance provides less coverage than what a manufactured homeowner could get on his or her own. While a manufactured home loan insurance policy typically covers the home itself, additional structures like garages, decks, patios, sheds, etc., personal property, personal liability and additional living expenses, forced placed homeowner's insurance covers just the collateral for the loan, which is the manufactured home.
Sometimes, the lender doesn’t realize that a piece of property is adequately covered and decides to order forced placed homeowner's insurance. Although the lender needs to notify the borrower twice before charging for forced placed insurance, as mentioned above, the homeowner might fail to review the notice letters or might never receive them.
If a lender mistakenly buys forced placed homeowner's insurance, he must cancel the policy as soon as the homeowner provides proof of coverage. If the policy obtained by the borrower overlaps with the forced placed policy, the lender must refund any duplicate premiums paid by the homeowner during the overlapping period.
If you have any inquiries about our manufactured home insurance and loan products, please feel free to contact our professionals today.