A lender placed insurance policy covers properties to mitigate a loan provider’s risk when a borrower fails to get adequate protection.
Mortgage lenders can get various coverage types, including hazard and flood policies, to safeguard the uninsured property from potentially costly damage. Lapses may be due to missed payments, non-payment or other reasons.
A lender will obtain this kind of insurance for foreclosed properties to protect its investment until a final sale or auction. There are various types of programs for this purpose, including:
- Property Indemnity
- General Liability
- Loss of Rental Income
If property owners let their policies lapse or do not have adequate safeguards to meet the legal minimums, a bank can get insurance to protect the residential or commercial buildings against fire, flood or earthquake damages. The borrowers pay the monthly premiums for these creditor-placed protections.
A lender placed insurance policy of this type usually offers less indemnification than the property owner’s coverage and does not supply liability or personal property guarantees. It protects only the lender’s investment.
Lenders are legally obligated to ensure continuous coverage for the properties they finance. Lapses require immediate replacement to protect a loan provider’s financial interest. Force placed policies safeguard a bank’s mortgage investment when property owners fail to have sufficient protections in place.