Mortgage and Selection Of Homeowners Insurance

Can a mortgage company select your homeowners insurance company without you signing a document with the insurance company?

1 Answer

Yes! Most of the time insurance companies just want a phone call. But even if you don't sign something from them, you'll still have to sign SOMETHING to authorize your money going to them. Read more details below.

There are many different things to consider with this question.

First of all, there is a disclosure called " anti-coercion." It states specifically that a borrower has the right to choose their own insurance agent.

The only time your insurance policy is really "selected" is when you pay for it. And you shouldn't pay for an insurance policy if you didn't have some part in authorizing it. So unless an escrow officer, or closing attorney put the final statement of costs in front of you and just told you to sign it without reading it, your insurance policy would not go into effect.

Even then, you can cancel whatever insurance your mortgage company obtained and shop for your own.

Let's get to the heart of the problem though. Did the mortgage broker notify you that he or she was doing this? There are certain forms you sign, not related to insurance, that would give the mortgage broker the opportunity to seek third party services on your behalf. Some insurance companies would accept this form as sufficient documentation to issue a commitment, or " Binder," for insurance (again, you don't get the policy until you pay for it).

If this was the case, it may have happened something like this: you apply for a loan, you sign a big stack of disclosures that you don't really read in detail, no one ever tells you you have to get your own insurance policy, at the last minute the mortgage broker finds out you haven't obtained it and calls his buddy down the street to get a quick insurance binder out under the supposition that you probably won't do anything about it since it would jeopardize closing the loan. It happens to people all the time and it's the exact reason the anti-coercion statement is part of required initial disclosures.

The mortgage brokers intentions could have been pure, ask him/her. Or he could have been trying to get business for his referral partner. Whatever the case, YES, there is a way for a mortgage broker to obtain a BINDER for insurance without you talking to the insurance company. It's a gray area as to whether or not that's ethical and some insurance companies won't allow it. I've had many clients over the years just tell me to take care of it for them because they don't want to worry about it, but my insurance agent partners always want a phone call before writing a BINDER.

But NO it is not possible for a mortgage broker to ENACT an insurance policy without you signing something that specifically references it. This document won't necessarily be from the insurance company, but it will have the insurance company's name on it along with a statement of other costs. Look through your loan package for something called the " HUD-1" or " Settlement Statement." There will often be a line showing who your insurance was paid to. You may have signed it without even realizing it.

So your course of action would be dictated by whether or not you're upset about this, or simply curious. If you're upset, you may be out of luck if you signed the HUD-1 and the anti-coercion statement. If you're not upset and find yourself with an insurance company you don't want, just cancel with them and shop for a new one (shop first, cancel second).