Florida Property Insurance and Its Relationship to Bankruptcy
insurance broker (Photo credit: ekea7)
In real life, certain chain events can lead to real and specific conclusions. That has recently happened in Florida where a property insurance increase has created a relationship to bankruptcy. Such an event, like adding to mortgage payments, can lead to you being forced to file bankruptcy. How does all of this work you may ask?
A Real Case in the News
According to a CBS news article posted in February 2012, a class action lawsuit has been filed against the Florida-backed Citizens Property Insurance Corporation. “Florida homeowners involved in the suit claim the state-run insurer is systematically overvaluing properties in order to raise premiums.
Plaintiffs in the suit claim Citizens used a software system called 360Value to inflate the replacement cost of their homes, causing their premiums to skyrocket by more than 100 percent.”
The Chain of Events Leading to Bankruptcy
Hurricane Andrew blew across most of Florida in 1992. Because of the amount of damage Hurricane Andrew did to Florida homes and businesses, the insurance companies were severally overwhelmed by the payouts for the damage the huge storm cost. As a result, Citizens Property Insurance Corporation was created by by the Florida Congress in 2002 and enacted into state law.
According to the CBS article, “Citizens was created to provide homeowners in high-risk areas and others not able to find coverage in the private market an opportunity to have insurance, but instead of being the insurance company of last resort, it evolved into the largest insurer of homes and businesses in Florida with nearly 1.5 million policy holders.”
Through the years, the state of Florida has required insurers to receive approval on any property insurance increase from the Office of Insurance Regulation. The only problem with the state not approving a property insurance increase by Citizens is the fact it is state-backed entity, and if it were to fail, anyone in Florida with homeowners insurance would be assessed to make up for any of the company’s losses. Therefore, it is not likely the state would oppose any property insurance increase for premiums made by Citizens.
When the recession began, millions of homes went into foreclosure across the nation, and Florida leads the nation in foreclosures. Florida currently has the highest foreclosure rates in the nation, all of which was contributed to the recession that started in 2007. Unemployment has sky rocketed during the recession driving many people to default on their mortgage loans and forced to file for bankruptcy.
Bankruptcy and the Effect of the Automatic Stay
One of the ways to stop foreclosure on a mortgaged home is to use the automatic stay of bankruptcy. The stay immediately stops the foreclosure process until the finances of the debtor can be worked out.
With home values currently decreasing and income less available to Floridians, any significant property insurance increase in premiums could drive the homeowners to default. Foreclosure would follow, and this in turn could force the homeowners into bankruptcy.
Related articles
- Four Common Questions on Foreclosure and Bankruptcy (betterbankruptcy.com)
- 5 Myths of Becoming a Homeowner after a Foreclosure/Short Sale/Bankruptcy (bobettecawthon.wordpress.com)
- Discharge and a Loan Modification After Bankruptcy (betterbankruptcy.com)
