Will Florida’s lawmakers be asked to pass laws that will violate standard mortgage requirements during the upcoming special session of the legislature?
On Tuesday, April 18, 2022, Governor Ron DeSantis convened a special session of the Florida Legislature, which will take place in May.1 A special session “may be convened by proclamation of the Governor, by joint proclamation by the President of the Senate and the Speaker of Parliament or by members of the Legislative Assembly for the purpose of considering specific legislation…”2 The focus of this special session will be Florida’s property insurance system.3 DeSantis has stated that his goal is to “gain some understanding and stabilize [the market]”.4 During their regular session this year, the Florida House of Representatives and the Senate could not agree on an approach to dealing with what they consider to be problems in the insurance market.5 The Senate had previously “proposed allowing new deductibles of up to 2 percent on roof damage…”;, But the House rejected this because of concerns about “increased deductibles for homeowners who need to replace damaged roofs.”6 There have been other ideas in the Legislative Assembly on how to approach the property insurance system, such as House Speaker Chris Sprowl’s previous proposal that “legislators should allow more time for changes to property insurance made in 2021 to take full root.”7
On Tuesday, April 26, 2022, DeSantis issued a proclamation with more information about this upcoming session in which he “called for a special session to consider legislation related to real estate insurance, reinsurance, amendments to the Florida Building Code to improve the affordability of real estate insurance,” civil remedies and appropriations. “8 A press release from DeSanti’s Communications Director regarding the announcement and the special session stated that the session will “begin at 9:00 a.m., Monday, May 23, 2022, and extend no later than 11:59 p.m., Friday, May 27, 2022.”9 DeSantis has also stated that his reason for calling this session now is to try to take action before the 2022 Atlantic hurricane season.10 The 2022 hurricane season begins on June 1, 2022 and lasts until November 30, 2022.11
An important question to look out for during this special session will be – how potential legislation can have a costly effect on Florida homeowners and their mortgages.
A standard mortgage requires replacement value.12 The difference between fair cash value and replacement value is the real cash value that accounts for the depreciation of the goods, while the replacement value does not.13 This is important because – when insurance companies sell insurance with actual cash value to a homeowner, most homeowners with a mortgage will be in violation of their mortgage agreement and federal regulations requirement that the entire home be insured at replacement value.
An example of a mortgage financier that requires replacement cost value is Fannie Mae, who states under her coverage requirements:
Property insurance for properties that guarantee loans delivered to Fannie Mae must protect against loss or damage from fire and other hazards covered by the standard of extended coverage. The coverage must ensure that claims can be settled according to compensation costs. Extended coverage must at least cover wind, hurricane, civil war (including riots), smoke, hail and damage caused by aircraft, vehicles or explosions. Typhoon coverage is required for security properties in Guam.14
This can have far-reaching effects on closing agents, real estate agents, real estate buyers, mortgage companies and banks that want to sell their federally supported mortgages. Homeowners could then be subject to compulsory insurance with unreasonable rates.
Compulsory insurance is a strategy for lenders to protect their financial interests by the lender stepping in and buying insurance on a home if the property owner’s insurance has been terminated, expired or not enough.15 In Compulsory Insurance, “the lender pays for the insurance premium in advance and then adds the cost of the premium to your monthly mortgage payment. Compulsory insurance can come out of your escrow account.”16 Compulsory insurance is also much more expensive than regular home insurance and can cost “four to ten times more than regular homeowners insurance.”17 Will the Florida legislature adopt something during this special session that would cause many homeowners to pay these expensive premiums for compulsory insurance?
The insurance industry is aware of all the potential problems this can entail but does not come with the consequences for homeowners.
As a policyholder, it is important to be aware of this upcoming special legislative meeting. It will also be important to follow the special session as it begins to know how it can affect you, your insurance and your mortgage.
It is much more important to kill bad bills than to send good ones.
– Calvin Coolidge
1 Romy Ellenbogen & Kirby Wilson, DeSantis announces May special session on Florida real estate insuranceTampa Bay Times, April 18, 2022, https://www.tampabay.com/news/florida-politics/2022/04/18/desantis-announces-may-special-session-on-florida-property-insurance/.
2 Special session, GlossaryFlorida Senate, https://www.flsenate.gov/reference/glossary#S.
3 Ellenbogen & Wilson, supra note 1.
8 Taryn Fenske, news release, Urges the legislature to hold a special session regarding property insuranceFlorida Gov. Ron DeSantis, April 26, 2022, https://www.flgov.com/2022/04/26/calling-on-the-legislature-to-hold-a-special-session-regarding-property-insurance/.
10 Ana Ceballos, DeSantis sets date for session on rising property insurance pricesTampa Bay Times, April 26, 2022, https://www.tampabay.com/news/florida-politics/2022/04/26/desantis-sets-dates-for-session-on-rising-property-insurance- prices / .
12 Pat Howard, How much home insurance is required by a mortgage lender? Policygenius, January 12, 2021, https://www.policygenius.com/homeowners-insurance/mortgage-lender-requirements-for-homeowners-insurance/.
13 Reimbursement cost for homeowners’ insurance vs. Actual cash valueAllstate, December 2021, https://www.allstate.com/tr/home-insurance/actual-cash-value-replacement-cost.aspx.
14 Sales guideFannie Mae, 15 December 2021, https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B7-Insurance/Chapter-B7-3-Property-and-Flood-Insurance / 1032998291 /B7-3-02-Allmän-fastighetsförsäkring-täckning-12-15-2021.htm.
15 Lucy Lazarony, What is compulsory insurance?Forbes Advisor, September 29, 2021, https://www.forbes.com/advisor/homeowners-insurance/force-placed-home-insurance/.