Refunds For Dirt Insurance or Refunds For Over Insuring - FLorida

During the recent boom and bust of the real estate market there has been wild fluctuations of appraisal values relative to the housing market place. This activity created a climate for many new mortgages and refinanced mortgages. In the rush to get these transactions closed, some lenders were requiring the full mortgage balance to be insured in the homeowners policy or a fire policy. There may be buyers who were required to purchase insurance with policy limits that are much too high.

There is a little known Florida Department of Insurance Regulation rule (69O-167.009 Mortgage Property Insurance Requirements Limited) that states the following: “No mortgage lender shall, in connection with any application for a mortgage loan in this state which is secured by a mortgage on residential real estate located in this state, require any prospective mortgagor to obtain by purchase or otherwise a property insurance policy in excess of the replacement value of the covered premises as a condition for granting such a mortgage.”

This means that only the replacement value of the building/buildings on the property are to be insured and not the value of the land. If the mortgage balance is higher than the replacement value of the building/buildings on the property the insurance policy should be reviewed for a possible refund. Insurance companies do not insure land.

The above rule in effect prohibits any mortgage lender from requiring a buyer to purchase insurance for more than the replacement value of the building regardless of the mortgage balance. This rule is often unknowingly violated in the mortgage industry.

If a mortgage company is in violation of this rule the State of Florida can penalize them and possibly suspend or revoke their license or certificate of authority for willful violations.

Very few people read their mortgage contract. In this case it could save you money.

The mortgage contract language requiring the amount of insurance varies with different mortgage lenders. Here are a few examples;

• Both CITI Financial Mortgage Company and US Bank N.A. mortgage contract requirements for property insurance read “the loan amount not to exceed 100% of the insurable value of the property improvements.” This is the correct language that should be in the mortgage agreement.
• SunTrust’s website shows the following mortgage contract language: “In most states, coverage must be equal to the loan balance or the value of the home, whichever is greater.” This language is not favorable to the buyer.
• Fannie Mae’s mortgage contract language states “An amount equal to the lesser of the unpaid principal balance of the Mortgage and 100 percent full replacement cost of the improvements.” This contract language is favorable to the buyer.
  
  If you find yourself in this unfavorable situation, your insurance agent should be able to help you in correcting this issue.
  
  On a side note, as promised, I have an update regarding my previous article (6/19/2008) about the My Safe Florida Home free inspection program. I recently had my home inspected and received about $800 refund on my homeowners policy as a result of that inspection. Of course I am pleased the program worked so well.