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I know that mortgage lenders generally require homeowners purchase home insurance, with a loss clause payable to the lender.

But what if it's a family loan, and the borrower is not cooperative? The case is a recorded 2nd mortgage loan to a family member. The borrower is not performing on the loan, and not providing documentation about required insurance. The borrower has made threats of committing arson. How can the lending family member protect their interests, short of foreclosure?

The holder of the 1st is protected, and periodically force places insurance for the amount of their loan. The family however, is not protected.

Is "lender placed insurance" possible for the 2nd mortgage, in such a situation? Is there a way to make such coverage something other than last resort and high cost? Is this even sold to individuals, not just corporations (See http://www.naic.org/cipr_topics/topic_lender_placed_insurance.htm )?

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    Even if such a thing were available, you'd probably want to take it out before the borrower threatens to burn the house down... I suspect any insurer would look at this situation and say "you're on your own"! – AakashM Sep 20 '17 at 7:42
  • Yes I agree with @AakashM here; it is very likely that if something like this were possible, it would only be possible before the loan was in place. Consider a situation without a loan at all - getting home insurance while knowing that someone is threatening to burn down the house would likely be a form of insurance fraud. – Grade 'Eh' Bacon Sep 20 '17 at 13:47
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    You still should have a promissory note and could sue the borrower if they default - having insurance just provides the lender with more surety that the borrower will be able to fulfill the debt. Remind the borrower that just because the house burns down (whether intentionally or not) the loan is still valid. – D Stanley Sep 20 '17 at 15:09
  • Is the borrower not required to have insurance from the lender on the first lien? – D Stanley Sep 20 '17 at 15:29
  • Lender placed insurance, according to internet research, is available to established mortgage holders with NO inspection requirements, and NO exclusions. Arson is specifically NOT excluded. The insurance is often sold in foreclosure and repossession situations where threats and words are exchanged. In fact, take a look at your homeowners policy. Chances you'll find that in case of arson the arsonist is out of luck, but the lender is still covered. – Bryce Sep 20 '17 at 19:00

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