More than three years ago, at the height of the real estate boom, I sold a Florida condo to a French couple.
At that time, they took a mortgage loan with a major national bank, after paying more than 30% down payment. They have seen the value of their property sink to about 40% of its original value.
The typical case of “underwater mortgage”. However, they have always acted responsibly, promptly paid every month to the bank, the condominium association, and the property tax authority. A couple of years ago, my client sent me an email from his country asking for help. The bank was charging his account a high amount, which he didn’t understand.
I made a few calls and finally understood that the bank needed a copy of the renewal of the condominium association insurance. Meanwhile they had taken insurance on his behalf, which cost was about 15 or 20 times the usual amount. I contacted the office of this association, which is under the administration of a large management company.
They agreed to fax a copy of the new yearly insurance to the bank. Meanwhile the bank was not receiving these copies for an unknown reason and my client was getting anxious. I completed a few calls to the bank, with the usual long minutes of waiting with the musical background.
Between my client’s battered English and some hours of my time on the phone, we finally managed to make somebody in the bank understand that they had to stop charging the account. My client had to struggle a couple more months to get the refund of the high charge to his account. When I had asked the bank why they had not advised my client before starting the process, I got a vague mention of some letter mailed to the client, which he had never received.
I advised my client to make sure that in a few months, the situation wouldn’t arise again, because insurance policies expire every year. The condominium building has about 300 units and I am almost sure that the same bank must have a few loans pending in this building. But they don’t keep this kind of record and just ask for these policies year after year.
All condo associations in Florida maintain certain insurance to cover building damages caused by fire, flood, or hurricanes. At least this what we all assume. But apparently the banks want to keep track at all times of these policies. The next year, my client called me. Now the condo association had taken a service which through the internet had to be used by condo owners to have the insurance policies sent to the bank.
I helped my client navigate through the sign-up and other hassles and make sure that, this time, his policy coverage was sent in time to the bank. The condo association apparently has had enough with hundreds of similar cases. Of course, the cost of the new “solution” would pad some pockets, and good luck to homeowners not so proficient with internet and online niceties. Fast forward another year. My client calls me again from France. The bank had started the same process again, charging him a very high amount for “insurance premiums” and “late charges”.
Back to the phone, the musical backgrounds, the long talks to multiple operators who kept affirming that the bank hadn’t received proof of insurance, while the condo association kept affirming that they had sent over and over the same document to the bank. Of course, after some bad blood and wasted time, everything was in order; my client’s account showed the refund.
My client, who was actually feeling uneasy about my non-compensated dedication to solve this annual problem, wrote me that he owned another property in Europe, and that it was so easy, compared to his US nightmare, where it seemed necessary to hire a secretary just to take care of management.
Next case is my Cuban boat mechanic. Not a highly educated person, he is however an excellent professional and I developed a very friendly relationship with him. He came to me one day with a bank statement that he didn’t understand.
His $200,000+ home had an $80,000 pending mortgage, and he was paying promptly about $670 every month to another large and well-known national bank. He had received a notice of late-payment and the bank claimed a balance to pay of about $8,000. He had gone to the bank’s office and they had told him about a homeowner’s insurance proof that had not been received by the bank.
Actually his agent had sent it twice. However, state laws had changed the flood zones, and his flood insurance premium (about $200 per year) had to be increased by about $20 a month. He had not received any bank notice until the day his account was charged.
I called the bank and indicated that he had increased his insurance by the small amount and had faxed them the proof. To make a long story short, it took me about three months, gallons of bad blood, unending discussions that invariably ended with the promises that all matters had been resolved, until the next letter was received by my Cuban friend, with the news that he owed still more money. The bank had taken a flood policy at a cost of roughly TWENTY times the average cost of flood insurance, through an unknown company. (I don’t want to guess who the real owners of that insurance company are).
This one was just a volunteer effort on my part. I felt that my friend could possible lose his home if, as he said, he wouldn’t pay attention to this foolishness and just pay every month his mortgage payment.
However the bank kept adding late fees and threats to eventually foreclose on the house unless satisfied. One day, they told me that they were crediting some quantities to my friend’s account. But they did not. I called again and the operator said that they had credited the amounts but they had placed the money in a “temporary” account where it was sitting, nobody caring about transferring it to my friend’s mortgage account.
I have lost count of the long negotiations, until one day, after a long fight on the phone; a “supervisor” said that if my friend would pay a fine of about $54 for late payment (!) they would close the case. It took me an hour to convince my indignant Cuban friend to just pay and get done with it.
The matter was eventually resolved. The account was cleared. But guess what?
A few weeks after, it was another insurance proof request.
This time it was the homeowner insurance. Luckily, he called promptly his agent and they faxed the proof of insurance, and problems were avoided.
They told him, however, that they had this kind of cases many times every month, and his insurance agent’s opinion was that a few people didn’t know how to address the problem and ended up paying through the nose the enormous costs of unnecessary insurance. The agent told him that they were dedicating an exhausting amount of time and effort to satisfy hundreds of client’s requests, and faxing over and over dozens of proof of insurance to mortgage lenders. In few words, the banks were using a numbers’ game to pocket millions of dollars of undue profit.
A certain percentage of homeowners would just pay because they are too old, less educated, or just too busy to fight. If this percentage is only 10% it would mean billions of dollars of undue profit. I I understand that banks could be worried by an uninsured mortgaged home. But who can arguably affirm that they could not use the same insurance companies that everybody uses, instead of insuring at a cost that I estimate at 2000% of the normal cost? Is there any hidden reason? Do the Federal authorities know about this? It would be so easy to mandate mortgage lenders to only issue insurance policies at the normal market cost. Or is there a vested interest in assuring that they can squeeze an already suffering public?
Is this why we have bailed out these “institutions” which squandered our money and our savings? I am sure that this is a secret to nobody. But until we regulate this, hundreds of millions of dollars will be the cost to humble homeowners and those most in need of assistance.
I searched some more into the matter and found out that this had lately become a widespread practice, affecting great part of homeowners.
Especially those who chose to act honestly, pay their mortgages, even though their home value is much lower that the amount of their loan.
I talked to a few insurance agents and they all know about the issue. Well, to end the story, my Cuban mechanic called me a week ago, and came to see me with a new threatening letter from his bank. Barely three months after I had settled or fixed the first problem.
They were requesting again insurance proofs, or else…. I am talking about the same insurance that his agent had sent the bank three months ago.
The insurance policy has not expired and does not need renewal. But the bank claims that they don’t have the proof. My client called both his agents.
He has different insurance companies for his flood and his homeowner’s policies. He begged to fax one more time the policies to the bank.
He told me that one of his insurance agents had finally lost patience and told him that he had enough and that this was the “last time” he was faxing the papers. Otherwise, he said, my Cuban friend could go find another insurance agency. Can you believe this?