How to Maintain Homeowners Insurance During Foreclosure
If your mortgage payment is delinquent, or if you have already received a foreclosure notice, one of the issues you will have to tackle is how to maintain insurance on the property during the foreclosure. This is important both because of potential claims for damage if anything happens to your property, and also because of personal liability if someone is injured on your property while you still reside there. Here's how to ensure your coverage is up-to-date.
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Instructions
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Establish whether you are paying your insurance separately from your mortgage, or whether your insurance payments are escrowed with your home loan.
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If you are paying homeowners insurance separately, be sure to maintain those payments during the foreclosure, and keep your insurer apprised of your situation.
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If your payments are escrowed (this is much more common), check your HUD1 statement in your closing documents to establish if your mortgage company is holding enough cash to keep paying your insurance despite the loan default. Lenders typically establish a two-month cushion for insurance payments, so your payments should be current for at least 60 days.
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Ask your lender about its policy regarding a default on insurance once that cushion runs out. Some will "force place" their own insurance, which may be substantially more expensive than coverage that you could obtain. This amount will be added to the loan default.
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Check if your insurance has a vacancy clause, if you intend to move out of your home before the foreclosure is completed. Your insurer could cancel your policy if the home is empty, even if you are still the legal owner.
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Ensure that your lender keeps your insurer up to date on the foreclosure situation, so that the policy can be cancelled at the appropriate time.
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Check with your insurer on its procedure for returning unused premium payments once your home reverts to the bank or is sold. Some insurers will return unused funds to the named insured (you), others will only return to the entity paying the premium (the bank).
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Tips & Warnings
It's well worth checking with your state insurance department on the local regulations governing homeowners insurance in foreclosure situations. Much of the law covering this eventuality is individual to each state, and your rights and responsibilities may vary considerably.
