The Borrower and their Insurance Agent Defrauded the Lender By Dan Harkey

The pivotal moment in this case was when the insurance agent, entrusted with ensuring the property was adequately insured, issued a falsified insurance binder. This document stating that the property was covered was issued while the carrier was drafting the insurance policy.

The reality is that the insurance company has declined the coverage. Still, the agent responsible for ensuring the property was adequately insured withheld this material information, which would have triggered a default, and the lender would have placed a forced-order insurance policy on the property.

When the lender audited their file 60 days after closing, which is an excellent practice, they discovered that no original insurance policy had been received. The lender called the insurance company and found that the company had declined coverage at the very beginning. There had been no coverage from the loan's closing until the audit. The agent tried to cover his fraud by claiming the insurance declined coverage because of the lender's harassment.

The lender immediately placed a forced-order insurance policy on the property to provide coverage and notified the borrower that they had violated a loan covenant by not having coverage. This was not just a breach of contract but a material default that had significant consequences for the lender.

The borrower eventually obtained insurance, but the cost and wasted time were not worth having the loan on the lender's books. This incident is a stark reminder of the financial implications of such actions, especially when there are hundreds or thousands of loans on the lender's books.

Thank you,

Dan Harkey

Educator & Private Money Lending Consultant

949 533 8315 [email protected]

Visit www.danharkey.com