When they purchased their Colonial split-level home they learned they were required to have flood insurance for the property. The insurance company that provided their homeowners policy also wrote the flood insurance policy. While the Spinellas instructed their lender to collect escrow for their property tax payments, the couple decided they’d pay the insurance policies independent of escrow.
The insurance bill would come, and they’d pay it. Every time.
In August 2009 they decided to refinance. They presented their new lender with evidence of their fully paid homeowners and flood insurance policies, and they got their new mortgage. The new lender would collect escrow for property taxes, and, like before, the couple would pay for homeowners and flood insurance on their own.
Then in September their mortgage was sold to Chase. That’s when the trouble started.
Their escrow payments were increased by more than $400, but the couple couldn’t figure out why. They called Chase, and after several calls it was determined the additional escrow was for a flood insurance policy.
He said Chase reps said it would be taken care of and the extra escrow would be canceled, but the next mortgage bill showed the same higher escrow amount. He called and called and called, trying to get it straight, and he while he waited, he continued to pay the higher escrow amount.
“I spoke to 38 people in 10 different departments and in three different countries,” Spinella said “Of all those, many said it was taken care of, but it was like they were reading from a script. We’re at our wits’ end now dealing with incompetency.”
He also called and sent letters to state representatives and government agencies to ask for help, but no one stepped up.
“It’s like David and Goliath. I’m David, they’re Goliath and they say drop dead,” he said.
That’s when the Spinellas called Bamboozled.
UNDERSTANDING THE REGS
We called Chase to see if it could cut through the red tape for these customers, who were obviously paying twice for the same insurance policy.
Chase said FEMA — the Federal Emergency Management Agency — required that it collect premiums for flood insurance to ensure prompt and complete payment.
But something didn’t mesh.
The original mortgage lender on the property didn’t collect escrow payments for flood insurance — only for property taxes — and neither did the refinancing bank. Why suddenly would Chase require the escrow?
We checked the National Flood Insurance Program website, which has comprehensive online rule books about flood insurance requirements. But the sections on escrow were not clear. One spot made it sound as if lenders were required to collect escrow for flood insurance premiums, while another sounded like homeowners had the choice to pay through escrow or directly to the insurance company.
We called FEMA for clarification.
“The agencies for lending regulation require their lenders to escrow flood insurance premiums if they escrow taxes or homeowners insurance on buildings in high-risk flood zones,” said FEMA spokeswoman Mary Olsen.
She referred us to the Consumer Compliance Handbook on flood insurance. Regulation H said: “An institution must require the escrow of flood insurance premiums for loans secured by residential improved real estate if it requires the escrow of other funds to cover other charges associated with the loan, such as taxes, premiums for hazard or fire insurance or other fees.”
So if the lender escrows for one payment, it’s required to escrow for everything. Or the homeowner could choose to escrow for nothing at all.
Interesting. No wonder the Spinellas were so upset when they were required by Chase to add more to their escrow account — after eight years of not having to pay into an escrow account for flood insurance. Seems Chase is following the rules but the Spinellas’ two previous lenders did not. The couple should have been required to escrow for flood insurance all along, so the lenders could make sure the homeowner didn’t allow a policy to lapse.
Back to Chase.
The Spinellas had already paid $2,167 out-of-pocket for their own flood insurance policy. Now they were paying more than $400 a month for a second policy. They don’t need two flood insurance policies, so it seems they were paying twice for the same service. And the flood insurance policy through Chase, annualized, would come to more than $4,000 — far more expensive than their individual policy.
Chase said the Spinellas could use their current, less expensive policy, and the lender would collect escrow for that policy. The couple said they’d rather start paying their own property taxes so the lender would not be required to collect escrow on anything.
“We would be happy to accommodate the customer and discontinue all escrow accounts on the mortgage,” said Chase spokesman Mike Fusco. “All we need is a written request from the customer.”
The Spinellas will do that.
We asked Chase if it could help the couple get back those doubled premiums.
“We are working with the insurance company on the refund for the amount that is due,” Fusco said.
The Spinellas were relieved to hear that after months and months of unsuccessful efforts, they would finally be able to stop making double payments for flood insurance. But they were still frustrated by their experience.
“I’m glad it turned out this way, but I’m also angry, I’m frustrated, I’m disappointed,” said Michael Spinella. “I asked politicians and the government for help and here I am, the little guy, and they did nothing. All I got was the runaround.”
The Spinellas will let us know when they receive the check for their escrow balance, and we’ll let you know in turn.