My Homeowners Insurance Policy, Part 2.5 | Brooklyn Covered

Here’s another suggestion. Why not get a whole-house review? I’m honored to refer my friend and client, Mr. Curtis (“Caulk Is Cheap”) Godoy, a NYC licensed and insured General Contractor, Master Carpenter and EPA Certified Painter. You can reach him at 1-347-581-5562, or drop him an email at curtis.godoy1200@gmail.com . If he thinks anything is amiss, he’ll let you know.

(In our last thrilling published post, we learned how failing to maintain our homes can lead to increased and larger claims, causing us to lose our voluntary homeowners insurance policy, and the accompanying threat of the dreaded force-placed policy.)

Okay, Why Should I Care?

Just one word.

Accessibility.

Accessibility to affordable, quality insurance in the voluntary market for you and the community you live in.

Let’s say your community’s claim results spike. Soon, the premiums for homeowners insurance could demonstrate a “similar propensity for growth,” or, go up like crazy. Or, in a worse-case scenario, major companies will choose to neither write nor renew policies in your community, providing fertile ground for the entry of more expensive players.

And, what happens if a homeowner can’t qualify for one of the newer companies due to their checkbook balance, or the credit score from hell?

Well, there’s always force-placed insurance.

Don’t I paint the rosiest pictures?

It’s Time

It’s time to renew your commitment to a disciplined program of home maintenance. With it, you should no longer suffer pipes or roofs leaking with regularity. You’ll replace the flexible hoses behind the washing machine with new, high-pressure hoses designed to resist kinks and sudden breaks. You’ll begin regularly performing a deep cleaning of your clothes dryer to prevent lint fires in either your dryer or dryer vent. (You do have a dryer vent, don’t you?)

You’ll caulk around your windows and doors, saving money on heating and cooling while keeping rain outside. You’ll check to ensure your windows are properly screwed into the frame. You’ll make sure your landscaping draws water away from your foundation, and not towards it. You’ll check and clean gutters and downspouts.

In short, you’ll do what every homeowner should do: Maintain your home.

Here’s another suggestion. Why not get a whole-house review? I’m honored to refer my friend and client, Mr. Curtis (“Caulk Is Cheap”) Godoy,  a NYC licensed and insured General Contractor, Master Carpenter and EPA Certified Painter. You can reach him at 1-347-581-5562, or drop him an email at curtis.godoy1200@gmail.com . If he thinks anything is amiss, he’ll let you know. If he feels you need a new roof, he’ll contact Gus Jean Louis, a.k.a., Gus the Roofer. You can reach him at 1-347-564-3009, or email him at Gusroofing@gmail.com. Pipes leaking? Contact Keith Huggins of Pusky Plumbing at 1-917-531-8385. Mr. Godoy  can put you in touch with qualified professionals who are licensed and insured. Why do I recommend these gentlemen? Because they are the only building professionals I let do any work in my mom’s home. They are true professionals, and have yet to disappoint.

Next time, we’ll see how your home’s location can cause your banishment to the force-placed insurance market.

(Need a plan for home maintenance? Just drop me an email at eustace@brooklyncovered.com, and I’ll email you a copy of the home maintenance schedule provided by Travelers Property and Casualty. And subscribe to BrooklynCovered.com for automatic notification of every new post. No email address? No problem. Just provide me with your address and phone information and I’ll  send you the brochure.)

My Homeowners Insurance Policy, Part 2 | Brooklyn Covered

When the economy was blasting away like a furnace in a steel mill, homeowners actually spent money, copious amounts of money, on the regular maintenance of their homes. This investment, a direct reflection of the pride of homeownership, came with a accompanying benefit: Because of the amount of care and attention paid to keeping their homes in tip-top shape, there were fewer claims impacting, for example, my agencys results. And, the claims which were submitted were smaller in size. Less cost, less frequency.

(In our last exciting segment of “Dude, Where’s My Homeowners Insurance Policy?”, we learned submitting a claim during the first 60 days after applying for homeowners (and auto) insurance is akin to bringing a vampire out in the daylight. Without the special sunshade.

Today’s installment will continue the study of claims and how they affect your ability to purchase homeowners insurance from preferred companies.)

Where’s My Homeowners Insurance Policy, Part 2

Let me start by saying in all my over 29 years in the insurance business, I’ve never seen claims come across my desk with the frequency and size the like of which I’ve seen in the last 20 years. You can blame Hurricane Irene and Tropical Storm Lee all you want. Truth is, too many people are simply not investing any real money and energy in maintaining their homes.

I blame the sin and disease of deferred maintenance.

Home Maintenance, The Economy, Deferred Home Maintenance

I believe there is a direct correlation between the state of the economy and home maintenance.

When the economy was blasting away like a furnace in a steel mill, homeowners actually spent money, copious amounts of money, on the regular maintenance of their homes. This investment, a direct reflection of the pride of homeownership, came with an accompanying benefit: Because of the amount of care and attention paid to keeping their homes in tip-top shape, there were fewer claims impacting, for example, my agency’s results. And, the claims were smaller. Less cost, less frequency.

Sounds like an old television commercial. The kind I really like.

The Years The Music Died

Then came 2006, 2007, and (why, oh why Lord?), 2008 and 2009, 2010, and 2011.

When once non-existent claims found life, and once-small claims became huge. When diamond rings began to “disappear,’ and water damage claims once averaging $3,000 to $5,000, suddenly ballooned to $10,000, $20,000 and beyond.

In one case, a clients home suffered interior water damage from a heavy rainstorm, caused by a leaky roof, caused by deferred maintenance, caused by reduced family income, further exacerbated by the family purchasing a home which was overpriced and in poor condition, inspected by an appraiser who over-appraised the property, accompanied by an equally unaffordable monthly mortgage committment.

The company I’d insured them with paid the claim. The check they received, less their deductible, should have been used to repair the defective roof, and replace water-damaged furniture, rugs and clothes . This way, when the raindrops fall in the future, no more leaky roof, no interior damage.

Your Homeowners Insurance Policy Is Not A Piggy Bank

Guess what? The next year, after a heavy rain, the same homeowner submitted yet another claim for the same cause of loss! Even the insurance company’s claims department was shocked they’d submit the same claim two years in a row.

I called the client, basically asking “What the hell? Why are you submitting the same claim two (2) years in a row? Why didn’t you repair the roof with the money you received last year?”

Their reply? “We used the money to catch up on the mortgage.”

Oy.

So, the company paid the claim, again. When policy renewal time rolled around, though, they got a different letter from the insurance company. Basically it read, “Your policy is being non-renewed for the following reason: Negative claim history.”

When you receive a letter like this from most voluntary companies, your options are few. You are done. End of story.

Now, this particular story could have had a happy ending, were I able to place them with another preferred company.

No one wanted them. Well, that’s not entirely true. One company did. At a premium of over $9,000 each year. (Don’t get all self-righteous and indignant. You want to dance to the band, you’ve got to pay the man, or in this case, the insurance company.)

So, once the bank learned their voluntary homeowners insurance policy lapsed, they graciously agreed to place a force-placed policy on the home. At a premium of $4,800 each year.

Heck, it was cheaper than the other policy I offered them.

(Our next post will address why home maintenance is important to individual homeowners and the communities they live in. Also, for the first time in the history of BrooklynCovered.com, referrals to home maintenance professionals! And please, take a minute and subscribe to BrooklynCovered.com by entering your name and email address at the top of the column on your right.) 

Dude, Where’s My Homeowners Insurance Policy? | Brooklyn Covered

Her first thought was to call the builder. You know what the builder said? He told her call me to put in a claim with her insurance company. I told her if she did that, with a brand-new house, I could almost guarantee her brand-new policy would be rejected. I reminded her of her homes ten-year warranty, which included the roof. I told her to inform the builder to have a roofer install a brand-new roof on the house, or her next call would be to the New York State Attorney Generals Office, followed by calls to Housing Preservation and Development, the Kings County District Attorneys office, etc.

She had him at the Attorney General of the State of New York.

(This post will begin a blog arc of posts surrounding the issues concerning what would cause a homeowner to lose their homeowners insurance policy issued by a preferred insurance company. While we’ll continue to return to the subject of Force-Placed hazard insurance, we’ll also examine issues surrounding claims, and  underwriting changes, just to name two.

If you are a victim of Force-Placed hazard insurance, and want to share your story, please drop me an email at eustace@brooklyncovered.com . Don’t worry, your identity will stay a secret. We just don’t want this shameful practice to remain in the shadows. We just need your stories to bring the dirty little secret out of the closet and into the light.

We’ll also examine some of the ins and outs of filing your income tax return this year, and planning tips for a more successful result on your income taxes next year.

So, while it may seem we’re running along different tangents, ours will , over the life of this blog,  converge. The convergence point? Your fuller understanding of things insurance, taxes and even defensive driving.

Thanks for joining us on the best ride in the carnival, BrooklynCovered.com !)

Where’s My Homeowners Insurance Policy?

Remember the movie “Dude, Where’s My Car?” Yeah, well neither do I. For this blog post the title works well since homeowners all over the downstate area of New York State (The five boroughs, Nassau, Suffolk and Westchester) are asking the question, “Dude, Where’s My Homeowners Insurance Policy?”

I’m thankful for referrals to me by my clients and real estate professionals for the different insurance and income tax preparation services  I offer. Lately though, the homeowners insurance policy conversations usually start with one of three questions:  

  1. “Why did my company cancel my policy?” 
  2. “Why didn’t my insurance company renew my policy?”
  3. And there’s my all-time favorite, “Well, what the heck do I do now?”

There are several reasons why your insurance company would choose to not renew your homeowners policy. We’ll cover this topic over the next two (2) posts. Let’s begin with;

  1. Claims:

Let’s start with the claims you submit to your homeowners insurance company. As an example, if you submit two (2) claims for water damage within five (5) years of each other, you’re cancelled. Why? Multiple plumbing leaks are a sure sign of deferred maintenance. Too many people think it’s the job of the insurance company to make normal repairs. Read your policy. Home maintenance is your job, not the insurance companys.

This also applies to interior water damage caused by old and worn-out roofs, windows which weren’t properly fitted or sealed, and even a next-door neighbor whose boiler explodes, flooding his/her basement, and yours.

Mold, anyone?

Don’t think new homes are immune to these types of problems. New homes usually come with even more problems than homes built before 1970.  Remember when new homes started springing up all over Brooklyn back in the mid-90s to 2007? I watched the last group of three-family homes in Atlantic Center as they were built. They dug a hole on Monday,  erected the concrete form on Tuesday, poured the foundation floor on Wednesday, and poured the foundation walls on Thursday and Friday.

On Saturday and Sunday, they rested.

Come Monday morning, the pre-fab modules would start rolling in. Jump down, turn around, pick a losing Lotto number, and the house was done. Soon the proud, new homeowners would take possession of the brand-new home.

And that’s when the fun began.

I’ll never the forget the conversation I had with a client who just purchased a brand-new home in another development after suffering through her first rainstorm. Her upstairs tenant called her and said, “I hate to bother you, but it’s raining heavier in my apartment than it is outside.” And when my client reached home, she found the leakage was so bad her first floor apartment, with the new rug and furniture, and well everything was ruined. 

Submit A Water Damage Claim In The First 60 Days? For A Defective Roof? Kiss Your Policy Goodbye.

Her first thought was to call the builder. You know what the builder said? He told her call me to put in a claim with her insurance company. I told her if she did that, with a brand-new house, I could almost guarantee her brand-new policy would be rejected. I reminded her of her homes ten-year warranty, which included the roof. I told her to inform the builder to have a roofer install a brand-new roof on the house, or her next call would be to the New York State Attorney Generals Office, followed by calls to Housing Preservation and Development, the Kings County District Attorneys office, etc.

She had him at the Attorney General of the State of New York. A new leak-free roof was installed, and she joyously anticipated the next rainstorm.

Until the walls around the windows leaked.

Let’s just say the builder spent a great deal of time repairing every defect in her home and most of the other homes like hers. Had she submitted a claim during the first 60 days of her new policy, the insurance company could have rejected her application. Why? Remember this: Every homeowners and auto insurance company in New York State, has the right to reject your policy for underwriting reasons during the first 60 days after your coverage goes into effect for underwriting reasons. That’s one reason why top-tier companies want to have your date of birth, social security number, and last address when you apply for a homeowners insurance policy. They run a Comprehensive Loss Underwriting Exchange (C. L. U. E.) report on you and your future home, detailing just  every reported claim you’ve had in the last five (5) years, whether as a renter or a homeowner. They also review your credit report to see exactly which “rating tier” to assign you to.

Also, most companies arrange for a company home inspector to come to your home during those first 60 days to guarantee the house meets their requirements. I’ll never forget the first time the New York Property Insurance Underwriting Association (N.Y.P.I.U.A., a.k.a. “The Fair Plan”), rejected an application because the house had outstanding violations and was in lousy condition.

And when the Fair Plan refuses to cover you, you’ve got it bad. Force-placed insurance, anyone? 

Think about it: Why go to all the trouble and cost to issue a policy, only to reject it for underwriting reasons.? Better to underwrite before issue and before a claim.

Our next post will expose other reasons why you lost, or could lose, your homeowners insurance policy with a preferred company. 

Birth Of Force-Placed Insurance | Brooklyn Covered

Of course, the jackals were waiting in the bush. As soon the distressed fell into default, they pounced. Now the letters and calls offerd relief in the form of a quick sale. In many of theses cases, what the house sold for was barely enough to cover the outstanding mortgage. So, you had a home you’ve lived in for 30 or 40 years. No mortgage. Now you have nothing and nowhere to live.

The Birthplace of Force-Placed Insurance

While those who participated in the scam known as sub-prime lending deserve whatever punishment they receive, let’s not forget where they learned their lessons. And how force-placed insurance grew to become the serious issue it is today.

An Indication of Force-Placed Insurance

PropertyShark.com provides information about housing around the region. PropertyShark .com just  published a map showing all the distressed properties in New York City during 2011. You can see the map here: http://www.propertyshark.com/mason/ny/New-York-City/Maps?map=nyc2&x=0.5632&y=0.6809333333333333&zoom=2&basemap=lispendens&star=1&tab=themes&ll=40.6289391996291,-73.9243806440218

Now, as you look at the areas in Brooklyn and Queens, a disturbing trend becomes evident. In communities of color there are more of those nasty little dots than anywhere else on the map. How did this happen?

Well, blame the first phase of the problem on those dirt bags who engaged in the worse form of predatory lending known to man: The predation of elderly and unsophisticated homeowners.

They mailed thousand of letters each week, and employed telemarketers whose only mission was calling these unsuspecting homeowners and convincing them to meet with a consultant. They told these vulnerable folk about how their homes had money (equity) just sitting there doing nothing. They could use this money or repairs, a trip home, and many other reasons. They never told them about reverse mortgages. No, you see there was little profit in legitimate financial instruments like reverse mortgages. Heck, sometimes, they didn’t even say a mortgage was involved.

Then, when they met with their unsuspecting victims, they’d tell them how they didn’t have to take a dime out of their pockets for anything. Little did the public know everything was coming out of their home equity. Many didn’t know  how their loan applications were falsified to reflect fraudulent rental, pension and employment incomes.  Corrupt appraisers  valued homes for much more than they were worth, so lenders could meet the necessary “loan-to-value” numbers.

So, the homeowners applied for $25, 000 and more. They’d go to the closing table thinking about what they’d do with the money, only to walk away with $5,000 or $7,000. What happened to the rest of the money, you ask? Well, that went for attorney fees, application fees, and any other fees you can think of. Fees which, were the mortgage not predatory in nature, would average about 6% of the total cost of the loan. Money which shouldn’t come out of their equity, but from liquid cash.

Once the deception was discovered, some would revolt and demand, via the right of the three-day rescission rule, the cancellation of the loan and return of all of their funds.

Too few people did this.

Most, convinced this was the way business was done, struggled to pay loans with high interest rates, at a time of life when they should enjoy living in a home without outstanding debt. And yes, force-placed homeowners insurance helped many of these same people fall deeper into the pit. Many of these people wound up losing their homes, because their Social Security and pension checks couldn’t handle the weight of their new monthly obligation.

Of course, the jackals were waiting in the bush. As soon the distressed house fell into default, they pounced. Now the letters and calls offered relief in the form of a quick sale. In many of theses cases, what the house sold for was barely enough to cover the outstanding mortgage. So, you had a home you’ve lived in for 30 or 40 years. No mortgage. Now you have nothing and nowhere to live.

I’ll be returning to the subject of force-placed homeowners insurance next week. I just wanted to let everyone know this resource was available.

If you, a family member, or a close friend are either in, or facing default on your mortgage obligations, please call me at 718-783-2722. There are organizations like Bridge Street Development Corp. ,  (bsdcorp.org), and Neighborhood Housing Services (nhsnyc.org), ready to provide counsel and guidance to homeowners in need. If you’re paying for force-placed insurance, call me. Let’s work together to save you thousands of dollars you can use to bring and keep your mortgage obligations current.

Force-Placed Home Insurance | Brooklyn Covered

When you signed your mortgage commitment, one of the requirements you agreed to do was maintain home insurance on your home. This homeowners insurance policy would contain a certain amount of Coverage A – Dwelling Coverage, as well as a mortgagee clause, naming the bank and your loan number.

What Is Force-Placed Home Insurance?

Force-placed home insurance is insurance your mortgage bank places on your home when you fail to maintain contractually required home insurance coverage.

Why Do I Need Home Insurance?

When you signed your mortgage commitment, one of the requirements you agreed to do was maintain home insurance on your home. This homeowners insurance policy would contain a certain amount of Coverage A – Dwelling Coverage, as well as a mortgagee clause, naming the bank and your loan number.

When you think about it, home insurance protects the homeowner against the loss of what is once again, the single largest purchase many families will ever make. Imagine a fire reducing your home to cinders and burned bricks. Without home insurance containing coverages in the proper amounts, you’d probably suffer a total loss of all you’d worked so hard to acquire.

So How Does The Bank Figure Into All Of This?

When a bank makes a home mortgage loan this creates the need for the bank to protect its interest in the collateral supporting the loan, otherwise known as the home. So the bank is fully within its right to require you keep certain coverage on the home.

What Creates The Need For The Force-Placed Home Insurance?

Your mortgage is composed of four (4) basic components:

  1. Principal, or the amount which amortizes or reduces the amount you owe the bank.
  2. Interest, or the cost of the money you’re borrowing. (What, you thought you get a $500,000 loan for free?)
  3. Taxes, or what your local municipality charges you for your home to sit in or on dirt. This amount is usually based on the number of stories, square footage and lot size of the house. That’s right, you’re paying more just to have the huge burned lawn.
  4. Insurance, which is my favorite part.

The portion of the mortgage for the taxes and homeowners insurance are escrowed monthly. That means a part of the quarterly or annual bills for each are collected and held by the bank each month, presumably to make payments when due. The key point to remember is the escrow system works well when your monthly mortgage payments are made on time each and every month. Fall behind by even one payment and you ‘ve developed a shortage in your escrow account.

Now here’s the kicker. Let’s say you bought a home during the period I will always call “The Time of Home Purchase Madness.” First, you paid too much for the house. Second, you someone qualified for a mortgage by being able to fog a mirror. No documentation, lousy credit score, and no down payment? Heck, certain mortgage brokers would knock their mommas out of the way to get you a loan.

Let’s move forward to what I call the “What The Hell Were We Thinking?” or, “What Do We Do Now?” time. That’s when too many people realized they should’ve stayed in their rent-stabilized apartments, kept the affordable home they already had, or kept sleeping on Mom’s couch. Suddenly, you miss first one mortgage payment, then another. Now, banks will move heaven and earth to make sure  the real estate taxes on your home are always paid on time. The last thing they want is to lose a property they’re holding a note on to someone who purchases a tax lien.

Banks Do The Same Thing For The Home Insurance, Right?

Wrong.

Let’s imagine your escrow is now short by two to four months payments. Home insurance bills are usually sent to the bank or mortgage servicing company 30 days before the due date.

In the worse case scenario, you have an escrow shortage when the bill from your homeowners insurance company arrives.

Guess what? Since you failed to keep up your end of the bargain, the bank is not required to go out of pocket to pay your homeowners insurance premium . The policy usually lapses. And then guess what happens? Because your world is collapsing around you, and each day brings more despair, you stop opening the mail or answering the telephone. It’s only months later when you learn your homeowners insurance policy lapsed and the bank placed another, force-placed policy on your home. And what gives you a clue? The sudden increase in the negative balance of your escrow account to the tune of $3000 to $8000.

Why so much? Because they can. It’s stupid, really. Instead of just paying a premium of say, $1800, the bank instead buys a policy for you which will cost at least three times as much. With less coverage. See, that’s the real zinger: Every force-placed policy I’ve ever seen covers only one thing – the outstanding mortgage balance.

There’s no coverage for your personal belongings in case of fire or theft. No coverage for liability should someone injure themselves on your property. No coverage to help you with the added expenses of renting an apartment while your home is being rebuilt.

Not even the full replacement cost of your home.

Just the outstanding mortgage balance.

And you’re paying at least three times as much for the privilege to get less coverage.

In my next post about force-placed home insurance, I’ll talk about how it will continue to drag down the economy, how to avoid having it happen to you, and what to do if it does happens to you. Also, I’ll include a link to a radio interview I did back in 2009, about the force-placed home insurance problem.

Eustace L. Greaves, Jr., LUTCF is a Brooklyn-based independent insurance agent and broker. Contact him today to make an appointment to review your home, life, disability, flood, renters, condo, coop, and auto insurance program. You can also reach him by email at Eustace@insuremeeg.com. And please take a moment to subscribe to BrooklynCovered.com.