Specialty insurers charge huge premiums when homeowner policies lapse.

Merlin Law Group's attorney, Sean Shaw, who used to be the state insurance consumer advocate, says that it can create a problem for struggling borrowers.
Sean Shaw: "They can go straight to your escrow account and pull the money out. And you happen to look at your balance and it's negative $6,000. And you've got an impending foreclosure."
Merlin Law Group has joined a team of private attorneys digging into the fees that lender-placed insurers pay banks or mortgage servicers.
Sean Shaw: "Homeowners were essentially overpaying and their over-payment was in the form of kickbacks to certain companies."
Shaw's legal team sued J.P. Morgan Chase & Co. and American Security Insurance. Without admitting wrongdoing, the bank and the insurer agreed in November to pay up to $300 million to settle allegations that they overcharged homeowners for force-placed policies.
Sean Shaw: "Lots of time, lots of discovery, thousands of pages of documents for us to figure out what was going on. Once you unravel it all, we found that really it was an illusory service charge that was being paid to do nothing. It was kind of a commission that was just a kickback." "The average consumer would not have known what was going on at all."