You may think you do. But if you are one of many people who are:
- behind on mortgage payments;
- in the middle of a short sale;
- going through a strategic default; or
- filed bankruptcy and surrendered the home
you may not have the insurance coverage that you would think is normal to protect yourself from a loss, or worse, a lawsuit.
Most homeowners with a mortgage usually have an escrow account. An escrow account holds the extra amount you pay each month in your mortgage payment for the lender to pay your property taxes and homeowners insurance when they come due each year.
Property taxes come due in November of each year (to take advantage of the 4% discount).
Your homeowners insurance generally comes due in the same month each year for the month you initially bought the property. I purchased my home in June of 2006, so my insurance is due in June each year.
If you are one of the many people who have an escrow account, but have stopped paying your mortgage for any reason, the insurance policy you are familiar with may have been canceled.
Once your insurance is canceled due to non-payment, the lender will issue their own insurance policy to cover the home. It is called a forced placed insurance policy. The lender has basically forced an insurance policy on your property.
But they problem for you is: it only covers the lender, it does not cover you.
If the house burns down, the insurance company will pay the lender for the loss. Your possessions? Not covered.
Someone trips and falls on your cracked driveway? You aren’t covered. The person can sue you for your “dangerous” driveway.
Far-fetched you say? Not at all.
Example one: I had a client sued by a mobile car detailer. He tripped on the driveway. Example two: Husband and wife clients were surrendering a property. They weren’t paying the mortgage, so there was no insurance coverage – not for them anyway. A neighbor’s son fell off their four-wheeler and broke his leg. They obviously were sued.
Those are extreme examples, but they certainly happen. I am more concerned with flood damage, fire, or theft.
Don’t turn an unfortunate situation regarding your home mortgage into a disaster – not knowing whether you are properly insured or not.