On 4/24/2013, E*Trade Financial sent me a snail mail letter that arrived just at the beginning of my three-week vacation around the world. I know that statement won’t make you feel sorry for me, but it is why I’m just now getting through all my snail mail, most of which is junk.
E*Trade Financial owns, or at least puts their logo on, my home line of credit. The first line of the letter they sent me reads, “Our records indicate that the flood insurance policy insuring certain structures (“Structures”) located at the above noted Property Address expired or canceled on 04/24/13 at 12:01 a.m (“Expiration Date”). That is a blatant lie. I know it is a lie because I live in a condo and according to the insurance agent who sold me my homeowner’s insurance and whom I discussed this with just a couple of months ago, I can not insure the Structure because it is owned by the Home Owner’s Association (HOA), so I do not have flood insurance on it. And I know that the HOA does not currently have a flood insurance policy because I am the treasurer and I signed our insurance policy today for when it renews in the next month. So the very first line of the letter I received is a lie because there was no flood insurance coverage to expire or cancel. E*Trade Financial is just trying to cover up their failure to ensure the property had flood insurance.
Two sentences later reads, “If we do not receive a response from you within 45 days of the date of this notice, a flood insurance policy will be purchased on your behalf, at your expense, and the premiums will be added to the principal balance of your existing loan.” A few paragraphs later reads, “If you do not respond within 45 days from the date of this notice by submitting a Declaration page from a valid effective insurance policy to us, the required insurance coverage may, at our option, be obtained for you, at your expense. If necessary, we may place $49,690.98 of coverage on the Structure, which is the amount of flood insurance we believe would protect our interest.
They continue with my cost, specifying, “Flood Insurance Premium is approximately: $522.21”
How can they do this? As I’ve said, I talked to my insurance agent and he can’t sell me a flood insurance policy to cover the Structure because I don’t own the Structure, so how can E*Trade Financial buy a policy on my behalf and then charge me for it when I can’t buy one myself? This smells like a total scam between E*Trade Financial and the insurance company that is selling them the policy. The insurance company makes money on a policy that is bogus, and E*Trade Financial makes money because, as they say, “The insurance premiums will be added to the principal balance of your loan or line of credit.…On installment loans, your current monthly payments will not change; however, your final payment will include the premium amounts added during the life of the loan. On lines of credit, the flood insurance premium amount is added to the principal balance of your account.” So they make money on the increased interest.
On the top of the second page, in bold, capital letters, “THESE RATES ARE CONSIDERABLY HIGHER THAN THOSE THAT COULD BE OBTAINED BY PURCHASING A POLICY ON YOUR OWN. IF WE OBTAIN INSURANCE FOR YOU, YOU WILL BE RESPONSIBLE FOR THE COST OF THE INSURANCE AND YOU WILL BE CHARGED FOR THE TOTAL PREMIUM AMOUNT. *OUR FLOOD INSURANCE COVERS ONLY YOUR BUILDING AND DOES NOT COVER YOUR PERSONAL PROPERTY OR CONTENTS.*”
So not only are they going to buy insurance for me that my insurance agent says I can’t possibly buy on my own, but they are going to charge me a higher rate for it!
The only options they give me are to provide proof of flood insurance coverage or challenge the Special Flood Hazard Area determination, which I know I’d lose because I’m in a flood zone.
This isn’t just me. I know of other people who live in condos getting letters like this from their mortgage lenders. How many of them have had to pay? What do we do until the HOAs buy flood insurance? How do we fight the big banks?