Some Possible Solutions

• Author: Dennis J. Wall
• Pages: 251-294

This nal chapter focuses on some possible solutions to the issues raised

by claims and defenses surrounding lender force-placed insurance (LFPI)

as practiced by predatory mortgage loan servicers. The list found here is

by no means exhaustive. This is made clear in the nal section, which

invites the reader to “think outside the box.”

7.1 Make the Corrections on Fannie Mae and

Freddie Mac Standard Mortgage Forms

A. Add New Language to Old Forms

Adding new language to old forms can be done immediately and will

absolutely clarify the mortgage contract documents in use in most of the

mortgage transactions in the United States. In part here pertinent, Freddie

Mac’s Uniform Instrument Form 3010, published for use in Florida, can be

amended to reect that the nature of the insurance force-placed by lenders

is collateral protection insurance that protects the lenders at the expense

of the borrowers who agree to pay for the insurance if they, the borrowers,

fail to keep their own homeowner’s insurance in place.

This is not difcult. Only a few words change the situation. For example,

the few words in italics below change Freddie Mac’s Uniform Instrument

Form 3010 accordingly:

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Some Possible Solutions

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5. Property Insurance. . . . This insurance shall be maintained in the

amounts (including deductible levels) and for the periods that Lender

requires.

* * *

If Borrower fails to maintain any of the coverages described above,

Lender may obtain collateral protection insurance coverage in an

amount equal to the unpaid balance of Borrower’s mortgage loan

to protect Lender’s security interest in the Borrower’s mortgage loan

being repaid, at Lender’s option and Borrower’s expense. If Lender

buys Collateral Protection Insurance, the premium would be added

to the unpaid balance of Borrower’s mortgage loan.1

Likewise, Form 3033 is an example of a mortgage form published by Fred-

die Mac for general use outside of Florida. It, too, can easily be changed

to clearly announce what happens when the lender force-places insurance,

simply by adding the italicized language:

5. Borrower’s Obligation to Maintain Hazard Insurance or Property

Insurance. . . . The insurance will be in the amounts (including, but not

limited to, deductible levels) and for the periods of time required by Lender.

* * *

If I fail to maintain any of the insurance coverages described above,

Lender may obtain collateral protection insurance coverage in an

amount equal to the unpaid balance of my mortgage loan to pro-

tect Lender’s security interest in my mortgage loan being repaid, at

Lender’s option and my expense. If Lender buys Collateral Protec-

tion Insurance, the premium would be added to the unpaid balance

of my mortgage loan.2

Both forms contain similar paragraphs 9 as well, and these too gure in the

conicts between parties to the loan agreement concerning lender-placed

or force-placed insurance. Paragraph 9 of Form 3010 can reinforce these

clarications with language similar to the following:

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9. Protection of Lender’s Interest in the Property and Rights Under

This Security Instrument. . . . then Lender may do and pay for what-

ever is reasonable or appropriate to protect Lender’s interest in the

Property and rights under this Security Instrument . . .

* * *

Any amounts disbursed by Lender under this Section 9 shall become

additional debt of Borrower secured by this Security Instrument,

provided, however, that any and all amounts spent by a Lender to

obtain insurance coverage, at the Lender’s option and at the Bor-

rower’s expense, mean an amount equal to the outstanding balance

of the mortgage; insurance obtained by Lender in a greater amount

shall be at Lender’s own expense.3

Paragraph 9 of Form 3033 can provide the same things in the same addi-

tional words:

9. Lender’s Right to Protect Its Rights in the Property. . . . then Lender

may do and pay for whatever is reasonable and appropriate to pro-

tect Lender’s interest in the Property and Lender’s rights under this

Security Instrument.

* * *

I will pay to Lender any amounts, with interest, which Lender spends

under this Section 9, provided, however, that any and all amounts spent

by a Lender to obtain insurance coverage, at the Lender’s option and

at the Borrower’s expense, mean an amount equal to the outstanding

balance of the mortgage; insurance obtained by Lender in a greater

amount shall be at Lender’s own expense.4

Taken together, this is the language and these are the provisions of the loan

agreement that are at the heart of LFPI litigation over this issue. The nature

of the insurance coverage that lenders are able to force-place on borrowers

is at the center of conict in the decided LFPI case law. (This language is

similar to that submitted to the Federal Housing Finance Agency (FHFA)

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