Transcript
A (0:00)
What's going on, everyone? I am David Green, host of the David Green show, and I am here with Christian Bashelder, broker and owner of the one brokerage. And today we are going to be talking about. Christian, take it away.
B (0:12)
What happens if you watch the previous episode, I foreshadowed this. What happens if your lender doesn't pay your insurance, which is we'll go down this whole crazy spiral of a, of a client, not a client of ours, but a person, person in this news article that this happened to. So it's not some crazy, unhappenable event. It happened to sounds like this Houston couple who was uninsured during Hurricane Barrel. So we'll, we'll discuss what happens when that comes.
A (0:41)
Okay, so break it down for us, Christian. Let's start off by just describing what is homeowners insurance and why is it normally collected by the lender?
B (0:51)
Yeah. So the lender obviously cares about you paying them back. That's called your principal and interest. For those of you familiar, PITI stands for what your monthly payment is. The first P and I are easy. That's what you owe the lender for the repayment of the loan. The second I is insurance. That's your homeowner's insurance. That's what pays to protect the property. That's what comes from, you know, your Geico, your Allstate, your state farm, your farmers, whatever you choose to use for your insurance company. And then the T, obviously the final letter, I guess it's the second to last, but I did a matter of order. But the T is your property taxes. That's what you owe the state or county or, you know, whatever governing entity that is that is managing the property. Now, the one that we're going to focus in on is your homeowner's insurance because on our previous episode, we discussed what happens in the if the house is destroyed in a hurricane, in a flood and a fire, in a tornado, whatever happens, Right. And typically, your insurance policy will cover you for the losses. They will help you rebuild the house. They will cover you for any loss of rents that you have on a rental property or your living expenses during your displacement from that house. Now, what happens if, unfortunately, like what happened to this Houston couple in this, I think this is an ABC13 article here. When your lender, you pay your PITI every month to your lender, that means you're paying monthly installments of your insurance and your taxes and your lender is holding that for you. And during the end of your billing cycle, they go and they collect 12 months of insurance and they pay your homeowner's policy. They collect 12 months of taxes, maybe six months. If you're billed every six months but the full year and they pay your property taxes for you, the lender has an incentive to do that. The lender wants to make sure the house is properly insured and obviously that the property taxes are paid. Those are the only things that can impact the lender's investment into your house. Now, this lender sounds like they have quite a, quite a lawsuit coming their way from the sound of it on this article. This lender did not pay the home insurance and this house was a loss during Hurricane Barrel. What that means that the lender was collecting every month. They were collecting the payments from the borrower and for whatever reason, maybe somebody quit, maybe somebody messed up, maybe somebody goofed, who knows? The insurance was not paid and the renewal notices was most likely sent to the lender and said, hey, you owe us money, you owe us money, you owe us money. And the lender did not repay it. The lender made a mistake and that led to, during the time of this loss, during the hurricane, the house not having coverage, which is the worst case scenario for a borrower that is doing the right thing and paying their mortgage every month and yet still does not have the coverage they were led to believe they were paying for.