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Abstract

Force-placed insurance, also called lender-placed insurance, is the insurance policy mortgage lenders obtain on behalf of borrowers when borrowers fail to maintain hazard insurance on their homes. Although the possibility of force-placed insurance is contemplated by mortgage contracts, the policies often provide little coverage and are much costlier than insurance policies acquired on the open market. Lenders obtain the policies at unfairly high prices and sometimes receive kickbacks from the force-placed insurance companies, while borrowers alone bear the burden of paying for them. As such, lenders have no incentive to obtain force-placed insurance at fair prices with adequate coverage. The dubious force-placed insurance practices garnered attention after the Great Recession when many borrowers lost their homes, sometimes as a result of exorbitant force-placed insurance policies. Congress sought to remedy some of the practices through the Dodd-Frank Wall Street Reform and Consumer Protection Act. This Note explores the issues with force-placed insurance practices and suggests additional regulations that should be implemented to further police the force-placed insurance industry.

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