Your Lender Can Buy Your Insurance for You, and One in Seven Deals Fell Through

Two things landed this week, a day apart. One is a warning about a bill most people don’t think about until it shows up. The other is about signed deals falling apart before they get to closing.

Your Lender Can Buy Your Insurance for You

Here’s something a lot of people don’t find out until it happens to them, and it’s worth knowing first.

If you fall behind, money gets tight, and the homeowners insurance is the bill you decide to let go, your mortgage doesn’t just sit there and wait. Somewhere in the documents you signed at closing is a clause saying you have to keep the property insured. If you don’t, your servicer can go buy a policy and charge you for it. It’s called force-placed insurance, or lender-placed insurance, and you don’t get to agree to it now. You already did, back at the closing table.

Two things about that policy. It costs considerably more than what you’d have paid buying your own. And it protects the lender’s interest in the building. Not your belongings, and not you.

Then there’s the mechanical part, which is where it really bites. That premium goes onto your escrow account. Your escrow account goes short. The servicer re-runs the escrow analysis and spreads the shortage across your coming payments, so your monthly number goes up. The bill you skipped to save a few hundred dollars comes back bigger, bolted onto the one payment you were trying to protect.

That’s the warning. Here’s what happened this week, which is why it’s on my mind.

On Wednesday the New York State Department of Financial Services announced a $15.5 million settlement with NewRez, joining state agencies in 46 other states. Regulators found the company had force-placed insurance on more than 4,200 borrowers who already had an active policy of their own. Not people who let coverage lapse. People who were covered, charged for a second policy on top of it.

Regulators put the consumer harm at $4.5 million. NewRez paid $4,511,242 of that back in restitution and owes roughly $11 million more in penalties and costs. The finding came out of a multi-state examination opened in 2022 that looked at how the company ran between November 2020 and October 2021. Regulators say it broke the servicing rules under RESPA’s Regulation X. NewRez doesn’t admit wrongdoing, and says the issue was identified years ago and has since been addressed.

So there are two ways this goes wrong and they both end in the same place. You let the coverage go and the expensive policy is a fair consequence. Or somebody’s records were wrong and it happened anyway.

Either way the tell is identical. If your payment went up and your loan balance didn’t, look at escrow. Escrow means taxes or insurance. The escrow analysis is a real document and you can ask your servicer to send you a copy of it. If insurance is what moved, the question to ask is whether you had your own policy in force on the day they charged you for theirs.

One in Seven Agreements Fell Apart Last Month

The other one came from Redfin on Tuesday, in their July housing report.

Fourteen percent of July’s home-sale agreements fell through. Highest share of any month since 2023. One in seven signed deals didn’t make it to a closing.

The rest of the report reads the same direction. Home sales nationally dropped 4.1 percent from June to 285,312, the lowest in nearly two years. Pending sales fell 2.5 percent. New listings hit their lowest level since October 2024. The median sale price was $407,730, up 3.2 percent from a year ago and the highest July on record. Redfin’s monthly average on the 30-year fixed was 6.54 percent, a one-year high. Chen Zhao, who runs economics research there, called it a mid-summer slump and pointed at record prices, rising rates, and people feeling less secure about money.

Jacksonville sits in the same table. Median sale price $376,089, up 0.6 percent. Homes sold down 1.2 percent, pending sales down 3.8 percent. Active listings down 16.8 percent, which is Redfin’s count and not the only count published for this market. And 70 days on market, nine days faster than a year ago, the second-biggest speed-up of any metro they track.

Put those together and you get a strange picture. Houses here are moving faster and there are fewer of them for sale. Nationally, more of the deals that do get signed are dying before they close.

Now the part that matters if you’re behind on payments.

On a normal sale, a buyer walking costs you a few weeks. You relist, you find somebody else, you go again.

On a short sale it can cost you the whole thing. A short sale is three to six months of getting a lender to approve a specific price for a specific buyer, and the approval letter is written to that contract. When that buyer walks, you’re not back at the start. You’re back at the start with less time before an auction date, a valuation that’s gone stale, and an approval that has to be rebuilt.

So a market where one in seven deals breaks is a market where the short sale timeline gets more fragile, not less.

The other half of it is who’s left buying. That 6.54 percent monthly average is the highest in a year, and the buyer who gets priced out first is usually the same buyer who was going to write on a distressed property.

None of that tells you to do anything. It’s a reason to ask harder questions about the buyer than about the price. On a short sale you can ask for proof of funds and a full underwriting approval before the offer ever goes to the lender rather than after. And you can ask out loud, before anything gets signed, what happens to your timeline if that buyer walks away.

Where I Stop

Both of these run into questions I’m not licensed to answer.

Whether a servicer’s escrow error gives you anything to stand on is a legal question. Whether forgiven mortgage debt lands on you as taxable income is a tax question, and the exclusion that used to cover most of it lapsed at the start of this year. What any of it does to your credit is its own separate thing.

I’m not your attorney and I’m not your CPA. Those three go to the people who are.

What I can lay out is how each path behaves inside an actual closing. Catch up and keep the house. Ask the servicer about a modification or a repayment plan. Sell the normal way if the numbers reach. Ask the lender to take less through a short sale if they don’t. Hand it back through a deed in lieu. Or let it run through the court and deal with what’s on the other side. Each one costs something different, and which one fits is yours to pick.

Whether a lender agrees to any of it is that lender’s call on their own file. I can’t tell you how yours would go.

The thing that costs people usually isn’t the situation. It’s the timing. Early in that sequence there are more doors open than there are late in it.

Most of what I work is distressed property, and I work it in Jacksonville, Florida. A Florida license stops at the state line, so if you’re reading this from somewhere else, that question goes out through the SFR referral network to somebody licensed where you are.

If any of this is useful to you, I’m easy to reach. JimArmstrong904@gmail.com, or (904) 671-4161 if you’d rather talk it through.

Jim Armstrong, REALTOR, Momentum Realty, SFR (Short Sales and Foreclosure Resource) certified. This is general information, not legal, tax, or financial advice.

Momentum Realty is not associated with the government, and our service is not approved by the government or your lender.