What to Do if Your Mortgage Company Doesn’t Pay Your Insurance

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If your mortgage company pays your homeowners insurance through an escrow account, it is responsible for making payments on time. Unfortunately, however, this doesn't always happen. Here's how to protect yourself if you get notice of late payment or lapsed coverage.

Why Do Mortgage Companies Pay Your Homeowners Insurance?

When you finance a home purchase, part of your monthly payment may go toward an escrow account, which the mortgage company will use to pay homeowners insurance premiums on your behalf. You typically put enough cash in the account at closing to cover six months' worth of premiums (and property taxes as well), and the mortgage company keeps the account full by collecting enough to pay for an additional month of coverage along with each of your future mortgage payments.

Homeowners insurance helps protect the value of your home, which acts as collateral on your home loan. If the home were damaged (by fire or flood, for instance) without adequate property insurance, the lender might not be able to recoup what you owe on the loan if it were forced to foreclose.

In taking charge of your insurance payments, the lender assumes responsibility for making those payments on time. That obligation is one of many spelled out in the Real Estate Settlement Procedures Act, a law that regulates homebuying.

When the mortgage company submits premium payments, it uses your money to do so, and the insurance policy is in your name and belongs to you. So, if there are any issues with late or missed payments, the insurance company will reach out to you directly.

To that end, you should make sure you open and read all mail you receive from the insurance company (even if it's usually sales material) and review phone messages or emails you get from the insurer. If there's an issue with payments on your policy, they'll let you know.

Note that, depending on company policy and state law, insurance companies typically allow a grace period of several days after a payment due date before it notifies the policyholder. That could mean your first communication from the insurance company is a warning that your policy will be canceled unless payments are brought current by a specified deadline, such as within 15 to 30 days.

What if You Receive Notice Your Insurance Payment Is Late?

  • Contact your mortgage servicer immediately. Call or email the mortgage company using the phone number in your payment coupon book or other documentation. Many mortgages are serviced by companies other than those that issued the original loan, so the relevant contact information may not appear in the mortgage agreement you signed at closing. Once again, in some states, you could only have a couple of weeks from notification to policy cancellation, so it's critical to act fast.
  • Follow up in writing. Send your mortgage servicer a letter, with a copy of the notification you received from your insurance company and a summary of any conversations or email exchanges you may have had with their customer service department. Use certified mail or priority mail so you have confirmation of delivery.
  • Document everything. Keep a detailed list of all communications regarding the matter, including how and when you first learned about the payment issue; all communications with the mortgage company, including times, dates and names of individuals you spoke with; and hard copies of any emails or other correspondence, along with proof of delivery.
  • Trust but verify. If the mortgage servicer tells you a payment has been made and your policy is back in good standing, confirm that with the insurance company. Hang on to your documentation even after the matter is resolved. If the late payment was an isolated event, you may never need it again, but it could be helpful if problems recur.

If the mortgage company's late payments cause a lapse in your insurance coverage, the mortgage company could be liable to pay for any damages incurred during that time that would have been covered if your policy had remained in place. Your documentation of relevant communication with the mortgage company could be important to establishing your case. If you're in this situation, consult with an attorney familiar with insurance and real estate law to explore your options.

Can a Missed Insurance Payment Impact Your Credit?

Insurance companies don't report late payments to the national credit bureaus, so a mortgage servicer's late payment wouldn't result in negative entries on your credit reports. An insurance bill left unpaid for an extended period (typically 90 days or more) could lead the insurer to turn the bill over to a collection agency, however. That would appear as a negative credit report entry, with a negative effect on your credit scores. Following the steps outlined above would make that scenario highly unlikely, however.

How to Avoid Late Mortgage Payments

One reason mortgage companies insist on establishing escrow accounts is to ensure they have sufficient funds to pay insurance and tax bills on time even if you're occasionally late with a mortgage payment. Making late payments can do serious harm to your credit and, if you miss multiple payments, lead to loss of your home.

There are several practical steps you can take to avoid late payments on your mortgage and other bills, including:

  • Setting up automatic payments through your checking account
  • Using digital reminders such as calendar alarms and alerts to prevent you from forgetting when payments are due
  • Establishing a monthly routine for paying all your bills, in a way that allows ample time for payments to clear

If you find yourself unable to make a mortgage payment, reach out to your mortgage servicer as soon as possible, ideally before you miss a due date. If you're experiencing temporary income loss, ask about mortgage forbearance—short-term reduction or suspension of payments (which you'll eventually have to repay in full). If your financial issues are more permanent, possibilities include loan modification—changing the terms of your loan to lower your monthly payments—and refinancing the loan by taking out a new mortgage with more affordable payments.

Maintaining property insurance on your home is in your interest and that of your mortgage lender. For that reason, failure to keep up with timely premium payments from an escrow account is relatively unlikely. Mistakes can happen, however, so it's wise to know how to protect yourself and your home in case they do.