On Your Side is investigating what's called Lender Paid Mortgage Insurance, or LPMI. It's an insurance policy designed to protect the bank if you lose your home. But you are footing the bill, and you might not even know it.
In November 2011, Reno resident Rollin Lazzarone was busy submitting paperwork for a loan modification, hoping to keep his home and avoid foreclosure, when the Caughlin Fire happened. It destroyed 32 homes, including Lazzarone's on Meadow Country Drive in southwest Reno.
Even today, only the concrete foundation remains.
After the fire, an investigator with MGIC Insurance showed up asking about a Lender Paid Mortgage policy that had been taken out on the property. Lazzarone said that was the first he had ever heard of LPMI. He said he never would have known about it if his house had not burned to the ground, because the bank never told him.
"Don't you have a right to know what insurance policies are being carried on your property," asked Lazzarone.
"Nobody knows about LPMI. It's fraud," declared Reno Attorney Ken McKenna.
McKenna is representing Lazzarone, taking on the lender Wells Fargo in a case that is headed to trial next month in Washoe District Court. At issue, whether the bank ignored federal law by failing to disclose the LPMI policy when Lazzarone bought his house. "I didn't even know what LPMI was until about two months ago," said Lazzarone.
According to the description on the Wells Fargo website, it is the homeowner who typically pays for LPMI through a higher interest rate on their loan, even though it is the banks who are covered by these policies. If a home is lost through foreclosure or a fire, the bank can collect the unpaid principle, any delinquent interest and foreclosure costs.
That is why disclosure laws are in place. The Federal Homeowners Protection Act, passed by Congress, mandates that if you are paying for LPMI, you need to be informed about it first.
Keep in mind there is no direct benefit to the customer. But are the banks skirting that disclosure law?
McKenna says yes. "The problem in this case and we believe in a lot of cases is the LPMI is being taken out, by the bank, but the person who's buying the home doesn't even know its happening."
Wells Fargo declined to comment when On Your Side asked whether Lazzarone was informed about the LPMI policy on his house. A representative told us they cannot comment, because of the ongoing legal case.
On Your Side also asked them to show us a blank LPMI Disclosure document, but the bank would not show on. Wells Fargo refused to provide News 4 with any documentation to indicate how customers are informed about LPMI insurance.
"If the average joe was to call up tomorrow and ask, 'Do I have LPMI on my property,' can they find out? I don't think so," said Lazzarone.
Lazzarone said what bothers him most is that LPMI amounts to double dipping. If the bank forecloses on your house, they get the property, but they also get the value of that insurance policy; a policy the customer has been paying for.
"I think it speaks to the core of why you don't see anybody getting loan mods the past 6-7 years," said . "Why would I refinance you if I'm going to get my money back, collect all your payments and then I get to sell your property?"
It will now be up to a judge to decide whether that's fair. McKenna said he is out to collect for his client over this, and other issues involved with Lazzarone's home loan. But this case is about more than his client.
McKenna said he wants to send a message to the banking industry. "We're looking for punitive damages. We want to hit them over the head with a 2x4. In this case, in Reno, my client, in that courtroom, they're not going to get away with it."
So are you paying for one of these policies? You can look through your loan documents to find out if you signed a disclosure form. You can also try to ask your lender if there's an LPMI policy on your house.
Unfortunately, the insurance company will not tell you, because it is the bank's policy, not yours. Even though you are paying for it.
Rollin Lazzarone's trial is set for June 24. On Your Side will follow that case and let you know how it turns out.