Lending and Insurance Issues

[Matthew Davey]

I'm going to do my best to briefly explain the situation. I purchased a quadplex as a "house hack" while working as the realtor on the deal, using a VA loan. The underwriter secured a lender that was willing to accept the existing X-Wind policy, which excluded windstorm coverage.

That original lender subsequently sold the loan to a new lender. Several months later, when my insurance provider denied a renewal, I was required to obtain a new policy. This prompted the new lender to review my insurance coverage, at which point they discovered the absence of windstorm insurance. As a result, they force-placed windstorm coverage on the property, adding approximately $15,000 annually to my policy.

No insurers were offering windstorm coverage at the time, so it took a while for the force-placed insurance to go into effect. By the time the lender adjusted the monthly mortgage to account for the increased escrow requirements, I had effectively accrued a full year's worth of insurance payments over just six months—resulting in a $2,700 monthly increase. My original mortgage payment was $9,000, but it's now $11,700 solely due to this insurance change.

This issue arose only because the new lender purchased the loan and then imposed the windstorm insurance requirement—after the policy renewal had already occurred. They held the loan for six months before identifying the coverage gap. Had my original insurance policy been renewed without issue, the lender likely would never have noticed the absence of windstorm coverage.

I'm not trying to play a “gotcha” game with the lender, but I do believe the responsibility lies with them for failing to thoroughly assess the policy before acquiring the loan. If this coverage requirement had been in place when the loan was initially originated, I would not have qualified for the same mortgage terms.

Are there any legal angles I should be considering here? Or am I simply out of luck, with no recourse? Are there any recommendations, better insurance companies, or lenders that will waive wind-storm insurance or allow for self-insure? I'm looking for any creative solutions. 

Thank you, Matt