When a homeowner allows his or her insurance to lapse, what can the lender do to insure the property?

• A. Force-placed insurance
• B. Mortgage interest adjustment
• C. Homeowners association fees
• D. Property tax lien

Answer: (A)

When a homeowner lets the insurance lapse, the lender protects the loan by obtaining force-placed insurance, also called lender-placed coverage. This means the lender buys a policy on the property to ensure there is valid hazard coverage for the loan’s collateral, even without the borrower’s active policy. The coverage is designed to meet the lender’s minimum requirements, and the cost is typically charged to the borrower, often added to the mortgage escrow or loan balance. That protection is essential because without insurance, the lender’s security—the home—could face uninsured risks. Other options don’t address insurance protection: adjusting mortgage interest changes loan terms, homeowners association fees are unrelated charges, and a property tax lien tackles unpaid taxes rather than insurance coverage.