Can alender force be to get homeowner’s insurance through them?

I have a mortgage through a bank for 15 years. They are threatening foreclosure if I do not obtain their insurance at a higher rate than what I am getting for the same coverage through another outside agency. I have submitted copies of my coverage and my agent has faxed copies of my coverage. However, my bank states I need to get their coverage.

Asked on October 20, 2011 under Real Estate Law, Florida

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

IF your mortgage/loan agreement with the lender gives them the right to specificy from whom you get your insurance, or to reject your insurance at will, then they would have the right to require you get the insurance through them. But if the mortgage or loan agreement does not contain any clause or term giving them this power, they cannot require it now. A loan is made pursuant to terms; it is in essence a contract. The two parties to it have whatever rights and authority the loan agreement gave them, but no more and no less. Neither party may unilaterally add terms or conditions.

If you have been complying with all the requirements under your mortgage--including obviously making payments on time, but also any other requirements in the mortgage or other loan documents--then the bank can't foreclose. It can only foreclose if you are in default or some other material (i.e. significant or important) breach of the loan, not just to make you do what they want.

The thing to do then, is to double check what the loan documents say; you can also ask your bank to point to the term, clause, condition, etc. which they claim gives them the right to require this.


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