Foreclosure Stories: Lender puts homeowner under water with demand for flood insurance

Mar 1, 2012



This is a weekly column by Sandusky attorney Dan McGookey, devoted to telling true stories of homeowners who have been victimized by a lending system which makes it profitable to foreclose. The names used have been changed for privacy purposes. This is Sandy's Tale.

To her later regret, Sandy decided to borrow $28,000 for various purposes from Well Being Bank in 2001. As collateral for the loan, Sandy gave Well Being a mortgage on her modest home which she inherited from her mother. At the time, she was not required to purchase flood insurance as the closest water of any kind was a small creek running behind her neighbors’ homes across the street, hundreds of feet away.

All went well on the loan for almost a decade, as Sandy always made her payments on time and paid her taxes and insurance as well. Then in 2009, Well Being contacted Sandy to demand that she purchase flood insurance, claiming that according to government maps her home was in a flood zone. Knowing that from the layout of her property, there was no chance of damage from flooding, Sandy set out to challenge Well Being’s claim by researching the issue. Her research revealed that none of her neighbors were required to purchase flood insurance, and that the latest government maps in fact showed that her home was not in a flood zone.

Interestingly, as part of her research, Sandy learned from a local government official that Well Being had made demands on other people not in a flood zone to buy flood insurance. In other words, Well Being’s conduct seemed to be part of a pattern or practice of making fraudulent demands that homeowners buy and pay for something they didn’t need.

It is well-known that the mortgage loan servicing industry is rife with fraud. That fraud can take many different forms, including force-placing unneeded insurance. The benefit of doing so to the unscrupulous servicer is two-fold. First, chances are the servicer has an illicit kick-back relationship with the insurer, so that it will line its pockets further by forcing the unsuspecting homeowner to pay for something she or he doesn’t need. Second, anything that the servicer can do to raise the bar on the homeowner’s ability to pay only drives the homeowner one step closer to foreclosure, right where the servicer wants the homeowner to be. The reason the servicer actually wants the homeowner to default is that the servicer gets paid more for servicing a loan in default and foreclosure.

        Six months into her foreclosure, Sandy contacted McGookey Law Offices. We have begun the “push back” process which unfortunately is always required in order to achieve a good loan modification. Well Being has in turn admitted that Sandy does not have to buy flood insurance and should never have been required to do so. The ironic thing is that in the end Sandy will end up with much better loan terms than she started with, and will save thousands of dollars because of Well Being’s illegal conduct. The lesson in Sandy’s story is that when faced with a situation where your “lender” seems to be imposing unreasonable requirements on you, keep your focus and do the things which you know your loan requires. At the same time, establish a clear record with documentation challenging the legitimacy of the “lender’s” unreasonable demands to set the table for success in court, should that prove necessary.

    Next week: The story of Jake, whose loan servicer refuses to work with him to lower his monthly payment for only a year until he completes his Chapter 13 bankruptcy payments. Why is this surprising? The loan is FHA insured, meaning that you and I as taxpayers are going to pay the bill for driving Jake and his family out of his home.

Copyright 2012 Daniel L. McGookey