Saturday, March 29, 2008

Your mortgage escrow account could cause your financial ruin!

You and your mortgage can be in grave financial peril in this era of sick mortgage companies and bad loans.

You can hardly go a day without hearing news that another mortgage lender is teetering on the edge of bankruptcy. That's bad, surely, for the company and its stockholders. But most people don't know how dangerous it is for them when mortgage companies buy and sell portfolios of mortgages, or when companies are bought by other companies.

This blog post is an excerpt from Chapter Three of my book,
"Insurance Claim Secrets REVEALED!"

There is an extremely important strategy for you, the homeowner, in this chapter.

It is really important that you read this chapter all the way through. If you have your homeowners insurance premium paid by your lender out of an escrow account, THIS STORY WILL SHOCK YOU. IF YOU ARE NOT VERY CAREFUL, YOU COULD END UP WITH NO COVERAGE ON YOUR HOUSE. Or, you could end up with inferior coverage at four times the price…without your consent!!

Please read on…it’s going to take a little work to get to the shocking part. Hang with me.

In the last chapter I told you how I worked for a couple years as a claims examiner at the home office of an insurance company. But it was not just a normal property insurance company. This company sells hazard insurance to mortgage companies and banks in the United States. Let’s call this company…”ABC.” (That’s not its real name, nor is it the initials for its real name.)

You or I could not buy one of these policies, even if we wanted to. Why? Because ABC’s customers are the mortgage lenders.

A lot of people who have a mortgage have an escrow account with their lender. Part of each monthly mortgage payment goes into that escrow account to pay for insurance and/or property taxes. Escrow accounts are very popular with homeowners because the bank becomes responsible for paying the premium to the insurance company, and paying the property tax bill to the county. The borrower writes one check per month, and forgets about it.

But there are a lot of problems with escrow accounts.

Sometimes, the mortgage companies sell their mortgages in big portfolios to other lenders. When that happens, the buyer gets all of that escrow money, too. In the confusion surrounding the sale of those mortgages, and the time it takes to do the deal, the buyer sometimes fails to make premium payments on time. When that happens, some policies occasionally get cancelled.

Sometimes, people don’t automatically renew their policies that are in escrow, and the policies cancel.

Sometimes, insurance companies cancel homeowner policies, and the borrower doesn’t tell the lender, or replace the coverage in a timely manner. Sometimes, the insurance companies send the cancellation notices only to the lender, and the homeowner never knows his policy was cancelled.

Sometimes, lenders just screw up and forget to make premium payments…even when the money is in the escrow account and it’s no fault of the homeowner. And sometimes the lenders fail to notify the homeowner that they have no insurance. The homeowner finds out when they have a claim.

Banks and mortgage lenders have to deal with large numbers of foreclosed properties and repossessed properties, also known as REO (Real Estate Owned) properties. The borrower defaults on his loan, and there’s no one to pay the insurance premium, and the policy gets cancelled. I’ll come back to this in a minute.

In each of these examples, the home ends up without insurance coverage. Banks and mortgage companies do not like having loans on properties without insurance. If the house burns down, so does their equity.

ABC to the rescue!!!

ABC makes a deal with the banks and mortgage companies that it will write a policy from the date of cancellation of the borrower’s coverage, and into the future…as long as a premium is paid. ABC takes all these properties sight unseen, with no underwriting. Most of the time, ABC actually back-dates the policy to the date when the other policy cancelled…even after a claim is filed.

You can imagine that this is very high risk business for ABC. They don’t get a chance to look at any house, no matter if it’s a mansion on the hill, or a “crack house” in the worst part of a major city. ABC accepts them all. But, because they accept this high risk business, they charge premiums that are two…three…four times as much as a standard premium.

ABC has a remarkably low loss ratio, and makes enormous profits on this line of business.

So, if you are a homeowner, and your policy gets cancelled for any reason, the bank will pay the premium for you and charge it to your escrow account. Did your house payment suddenly go up? Your monthly house payment likely went up a lot to pay for the new insurance.

The BIG problem…the HUGE problem for YOU...the that the bank only cares about THEIR MONEY. They don’t care about you, the contents of your home, your legal liability, or where you’ll live if you have a fire and can’t live in that house. They usually only write the policy for the unpaid balance of the loan.

Lenders don’t care about the replacement cost of your property. Forced-placed coverage usually only covers the outstanding loan balance on your mortgage. So, if you had a house worth $150,000.00, and a loan balance of $50,000.00, the lender would buy a policy for $50,000. The lender only cares about getting the loan paid off.

What if your house is worth $150,000.00, and your loan balance was only $50,000, and you have a total loss fire with their coverage?

You are going to have a very bad, life-changing experience, that’s what!!

Normally, your property insurance covers your liability. Lenders don’t care about your liability exposure. They don’t care if a delivery man falls on your property and sues you for six figures. Forced-placed coverage only covers the outstanding loan balance on your mortgage. There is no liability coverage.

Normally, your property insurance covers your contents…your personal property, like your furniture and other belongings. Lenders do not care about your contents. They don’t care if everything you own is destroyed. Forced-placed coverage only covers the outstanding loan balance on your mortgage. There is no contents coverage.

Normally, when a homeowner buys insurance to protect his home and contents, the policy also has coverage for Additional Living Expenses. Lenders do not care if you are forced out of your home because something happens that makes your home unfit to live in. Lenders don’t care if you have to live temporarily in a homeless shelter. Forced placed coverage only covers the outstanding loan balance on your mortgage. There is no ALE coverage.

Also remember that the LENDER owns the forced-placed policy on your property, not you. The settlement checks will go to them, or perhaps made payable to the lender and you. But they usually won’t let you cash the check.

Are you still with me?

There is an extremely important strategy for you, the homeowner, in the rest of this chapter.

When I worked for that Atlanta insurance company, I regularly talked to people who said that the first time they were aware of the forced placed policy is when they filed a claim. Their old insurance company sent the premium notice to the lender, who missed the premium due date, and the policy cancelled. The lender then forced placed a policy on the property.

So, what do you do if this happens to YOU?

One of these scenarios will explain your situation:

1. You were negligent, and allowed your policy to lapse. It’s not the lender’s fault. The insurance company notifies the lender of the cancellation date. The lender forced-placed a policy for the loan balance. You have a claim.

What do you do? Very carefully follow the steps in this book to take control of your claim. Then, as soon as the claim is completed, buy your own policy and cancel the one the lender owns. Just make sure that you have coverage IN PLACE before you cancel the lender’s policy.

2. The lender was negligent, and allowed your policy to lapse. Then, the lender force-placed a policy for the loan balance. You have a claim.

What do you do? ALERT!!!! Get an attorney involved IMMEDIATELY!! Don’t wait!! Don’t try to be a nice guy!!

Get your documentation in order. Make sure that you can prove it was the lender’s fault that the premium was not paid. Next, have your attorney call the person at the lender who manages the Escrow Department. Explain what happened, and ask them what they plan to do to make things right. If they fix the problem and you don’t suffer any loss from their negligence, then all will be well.

How does the lender fix the problem THEY created?

The bank could contact your insurance company and accept liability. Many times, the insurance company will allow the bank to make the premium payment and reinstate the policy. Once that’s completed, you can proceed with your claim based upon the insurance policy that you did have before the cancellation.

The lender could accept liability and pay your claim out of their own pocket. You’ll usually see donkeys flying around outside your house right before this happens.

If the insurance company will not allow the policy to be reinstated, then you must seek damages from the lender itself. Your attorney must file a lawsuit against the lender.

Watch this carefully!!

1. If you have an escrow account through your mortgage lender, make sure that your homeowners insurance policy is in force at all times.

2. Call your homeowners insurance company, and make sure that they are sending renewal notices and premium notices to you, not just your mortgage company. Too many mistakes happen too frequently to trust your mortgage lender to take care of your business.

Remember earlier in the chapter I said that hazard insurance rarely has coverage for Contents, Additional Living Expenses (ALE), or Liability? If you have a fire, and your house is full of personal property, it’s worth tens of thousands. If you have a fire, and can’t live in your house for a few months, ALE coverage can mean the difference in staying at a homeless shelter, and some of your kids staying somewhere else, or keeping the family together in a short term rental apartment or house. Again, tens of thousands of dollars that you should be able to collect.

If a delivery man falls on your sidewalk and is injured….and you’re liable… his lawsuit for damages could easily run into six figures. Hazard insurance doesn’t cover liability.

So, you cannot afford to place all your assets and your property at risk by trusting someone else to handle your money for you. You cannot just pay your monthly mortgage payment and forget it.

The strategy is to make CERTAIN that your escrow account keeps your Homeowners insurance policy in force AT ALL TIMES!

This strategy ALONE could save you, the homeowner, hundreds, perhaps many thousands of dollars of insurance benefits.

Final, final thoughts! Your mortgage contract probably states that the mortgage company will replace your coverage in the event of the cancellation of your insurance coverage. However, if the mortgage company force-places an inferior policy, a true “replacement” of coverage has not occurred. Point this out to your attorney. You might have a very compelling cause of action against the mortgage company!!

Saturday, March 15, 2008

Tornado Strikes Downtown Atlanta!

Last night, March 14, 2008, at about 9:30, a strong tornado struck the downtown area of Atlanta, Georgia. From early reports, it appears that only a few people...less than a dozen...were injured. However, there was widespread property damage in both residential areas and the main commercial area of downtown.

All of the television stations rushed their camera crews to the darkened streets of downtown Atlanta, and for hours, that's all they talked about. They used descriptive terms like "chaos" and "total devastation" to describe what they saw.

Fortunately, their words were only the hype that TV reporters are known for.

Please don't misunderstand. In the light of early Saturday morning, we got aerial shots of the damage. The property damage is widespread, but seldom very deep. This is nothing like the tornadoes that swept through the Midwest a couple months ago, erasing entire small towns from the map. There are lots of skyscraper windows blown out, lots of roof damage, trees and power lines down, and many houses damaged. But "total devastation" it isn't!

There were tens of thousands of people in the downtown area last night. The Southeast Conference (SEC) was having their basketball conference championship tournament in the Georgia Dome. Big trade shows were in town. Thanks be to God, there were almost no injuries and no deaths.

My rough first estimate of damages is $50 million for both commercial and residential damages.

Now, the repairs begin. The insurance companies will swarm the area with adjusters. I can say with the certainty of years of claims adjusting experience that almost none of the policyholders will know how to submit a claim. Nor will they know what the claims process is, and how to maximize their claims settlement. Even the owners of the skyscrapers, hotels and office buildings are ignorant of the process of insurance claims.

What should the victims of these storms do? How about a Top Ten List?

1. Slow down. Don't accept a fast payment from your insurance adjuster if it means you close your file. Insurance companies love to make fast payments. But if you accept a payment before you know all your damages, you'll be giving your insurance company a big discount. Worst, you won't be able to get the repairs done for the money.
2. Notify the Insurance Company. Make sure you notify the insurance company the way the policy tells you to. You can put your claim in jeopardy if you don't do it right.
3. Mitigate your damages. That's a fancy term for protecting your property from further damage. Put a tarp over the roof...plastic over a broken window...that kind of protection. The expenses you'll incur are covered by your policy.
4. Take LOTS of photos. Don't rely on the's YOUR RESPONSIBILITY to prove your claim. The adjuster might not get to you for days. You may need to make temporary repairs to get your business back working, or your home livable. Cleanup might mean you're throwing away stuff you should get paid for. Make sure you've made a photo record of your loss.
5. Start a document file. Keep everything related to this claim in one place, like a box. Keep all receipts, claim documents, photos, EVERYTHING in that box.
6. Open a checking account just for handling the money for the repairs. This keeps you from mingling the funds with your normal household or business funds. It also makes record keeping easier.
7. Don't just blindly accept the adjuster that the insurance company sends to your home or business. Interview the adjuster to find out if they are trained to handle your loss. If your adjuster has two years or less experience, call his supervisor and DEMAND another adjuster.
8. If you need money to begin demolition of cleanup, ask the adjuster for an advance. If you need funds for Business Income or Additional Living Expenses, ask the adjuster for an advance. It's done all the time, but many times the insurance company won't volunteer it.
9. Record EVERY conversation you have with your adjuster. Keep a diary of adjusting activity. Don't EVER trust an adjuster to work on your behalf. His paycheck is paid by the insurance company. He's on THEIR SIDE.
10. Call a Public Insurance Adjuster (PA) to evaluate your claim. Public Adjusters are licensed through the State Department of Insurance to represent policyholders, not represent the insurance company. Hiring a PA will usually result in you getting more money in your settlement than if you just accept the offer from the insurance company.
Think about this... you hire doctors when you're sick. You hire attorneys when you have legal issues. You hire accountants to handle your books or file your taxes. So, in this case, when you do not know the insurance claims process, why would you hesitate to hire a claims professional to represent you in the submission of your claim? At the very least, you should consult a PA to find out if it makes economic sense for you to hire a PA. Your claim might not be big enough to warrant a PA, but you won't know unless you ask one. By the way, don't ask your insurance company adjuster if you need a PA. What would you expect them to say?

My book, "Insurance Claim Secrets REVEALED," goes into deeper detail on the claims process. Pick up a copy at my website or at Amazon.

Good Luck to you, my Atlanta neighbors! I hope you'll contact me if you have questions about your claim.

Saturday, March 8, 2008

Russell Longcore nominated for Georgia Author of the Year!!

Friends, just after I posted the last article, I opened my email and found an email from the Georgia Writers Association. They notified me that I have been nominated for the 44th annual award for Georgia Author of the Year!

Here's the content of the email:

"You are now part of a long line of Georgia Authors who have been nominated for a Georgia Author of the Year Award. Writing a book is a major accomplishment. Writing a good book, good enough to be nominated and even win, is an amazing accomplishment. Congratulations!

Your nomination has been processed and is awaiting our judging process. Plan now to attend our ceremony banquet at Kennesaw State University Center in Kennesaw on June 7, 2008. Come to our Second Saturday Meetings, participate in our Spring Fest 08 on March 29, 2008, and log onto our website often -

Soon your book will be listed on a special GWA Nomination Page on our website. You will want to link to that page once it is up and send emails to your friends, family and supporters to check out your listing as a Georgia Author of the Year Nominee.

You will be receiving some official Nominee book labels for your books - free of charge. If you need more labels, please contact me.

Again, congratulations. Your 44th Annual Georgia Author of the Year Nominee book labels are on their way!

Best Wishes,

Lisa M. Russell
Georgia Writers Association"

As you can imagine, I'm elated to receive this nomination. I'm not telling you that I'm honored just to be nominated...I WANT TO WIN!!!

Also, in case you've read some of my articles, and haven't figured out that I wrote a book, let me make sure you know! My book is entitled "Insurance Claim Secrets REVEALED!" I show consumers how to take control of their insurance claims, and add hundreds or even thousands more dollars to their claim settlements.

The book is available at our website in softcover, Ebook and Audiobook at:

You can also find the book at

Thanks for reading this update. If you've read the book and used the strategies,please let us know your thoughts and claims stories!

No Coverage For Your Children?

I got to thinking this week about families and how they can be affected by the definitions of words in insurance policies.

We all know that the divorce rate in America is very high. And we know that many divorced people have children. We also know that many divorced people with children get remarried.

The old understanding of what defines a family is changing constantly. But insurance policy terminology is not keeping up with that change, and your family may be affected at claim time.

For today, let’s look at how family structure can affect your homeowner’s, condo or renter’s insurance coverage.

Here are scenarios where family structure can be a coverage issue:

  1. You are separated from your spouse. She still lives in the house you jointly own, but you’ve taken an apartment.
  2. You and your spouse have joint custody of the children.
  3. Your second wife’s 22 year-old unmarried daughter lives with you at your home. She owns a Bichon Friese dog that bites the mailman, who sues you.
  4. Your elderly parents move in with you.
  5. (Actual case I worked) Your wife’s college roommate moves from California to Atlanta, looking for work. You take her in with the understanding that it’s only for three months. In the second month, the roommate’s mother back in California has a debilitating stroke, and also moves into your home.

Look with me at the HO-3 All Risk Homeowners Policy, the HO-6 Condominium Policy and the HO-4 Renters Insurance Policy, all from the Insurance Services Office (ISO). The ISO is the standard language for nearly all insurance policies.

First, we have to lay some groundwork by making sure we all understand some of the word definitions in the policies. You might consider this stuff boring, but know this: if the insurance company takes the time to define a particular word, then that word has a special meaning. If you or your situation don’t qualify under the definition, you won’t be covered.

In all three policies, “Insured” means you and residents of your household who are:

your relatives: or

other persons under the age of 21 and in the care of any person named above.

“You” and “your” refer to the “named insured” shown in the Declarations and the spouse if a resident of the same household.

Definitions for terms like “residents,” “household,” “relatives,” and “in the care of” are not to be found in the policies. Consequently, the courts have had a lot to say about the definitions of those terms. I could list court cases, but I don’t want to bore you. If you need to know the specific cases, let me know and I’ll get them for you.

Let’s take each one of the examples above and expand on them.

  1. You are separated from your spouse. She still lives in the house you jointly own, but you’ve taken an apartment. The policy is in both your names, but you don’t live there. You don’t qualify as a “resident.” If you have a claim, the insurance company could try to deny coverage to you because you don’t live there, even during a legal separation.
  2. You are divorced from your spouse and have joint custody of the children. The children go back and forth between your house and your ex-spouse’s house. One of the children causes a serious injury to another neighborhood child while at your home. In the Liability portion of the policy, the insurance company has a duty to provide legal defense for the claim and any lawsuit. But is the child an “insured?” The insurance company could argue that the child spends more hours per week at your ex-spouse’s residence than at yours, and deny coverage to you. That could expose you to a large lawsuit settlement, and could bankrupt you. Take heart, though. There is a court case in which the Court decided that the children had dual residency,and decided that the child was covered under both homeowners policies.
  3. Your second wife’s 22 year-old unmarried daughter lives with you at your home. She owns a Bichon Friese dog that bites the mailman, who sues you. Is the daughter covered? Well, she’s a relative, so she’s covered. How about the dog bite lawsuit? Congratulations, you’re covered again. The policy states that the dog bite is covered. But, if the daughter had a boyfriend who stayed with her, no coverage for anything the boyfriend does that causes a loss.
  4. Your elderly parents move in with you. But, they are healthy, and financially self-sufficient. They spend 7 months each year in their Florida winter home, and use your address as their legal address. They are not “in your care.” Are they covered under your policy? Yes, they qualify as “insured” because they are relatives. But, in the case of a claim, the insurance company could argue that they are not “residents.”
  5. (Actual case I worked) Your wife’s college roommate moves from California to Atlanta, looking for work. You take her in with the understanding that it’s only for three months while she gets a job and finds an apartment. In the second month, the roommate’s mother back in California has a debilitating stroke, and also moves into your home. The roommate gets up one morning after you and your wife have left, and gets ready in the bathroom. She lit a candle and placed it on the top of the fiberglass garden tub. She forgets to blow out the candle and leaves for a couple hours, while her wheelchair-bound mother is at home alone. The candle ignites the fiberglass tub, causing a $135,000 fire. Mom gets out safely. In this claim, the insurance company actually referred the claim to their Special Investigations Unit (SIU) to try and prove that the homeowners committed arson. The insurance company spent over THREE MONTHS on their investigation, during which they would not tell the homeowners anything. The insurer took recorded statements from the homeowner, his wife and the roommate...none of whom were at home when the fire started. The insurer never asked for any information from the mother, who was actually inside the house when the fire started. Further, they would not pay the homeowners any Additional Living Expenses. They denied coverage to the roommate and her mother for their personal property destroyed in the fire, because they did not qualify as “insured.” The delay nearly bankrupted the homeowners. I represented the homeowners, and we finally got a settlement for them after months of strenuous negotiation.

So, you can see that undefined words in your policy can cause you headaches, even litigation. Custody of your children doesn’t necessarily mean that they qualify as residents. Being a resident of a dwelling doesn’t automatically qualify a person as a resident of a household for insurance coverage.

Do you have a story about how the definition of an insurance term caused you problems, or caused the insurance company to deny your claim? Let’s discuss it in the blog.

Thanks for reading this posting, and here’s a toast to clear definitions!