During the upcoming special session of the Legislature, will Florida legislators be asked to pass laws that will violate standard mortgage requirements?

On Tuesday, April 18, 2022, Governor Ron DeSantis called for a special session of the Florida Legislature that will take place in May.1 A special session “may be called by Proclamation of the Governor, by Joint Proclamation of the Senate President and the House Speaker, or by members of the legislature for the purpose of considering specific legislation . . . .”2 The point of focus in this special session will be Florida’s property insurance system.3 DeSantis has stated his goal is to “bring some sanity and stabilize [the market]”.4 During their regular session this year, the Florida House of Representatives and Senate could not agree on an approach of how to deal with what they believe are problems in the insurance market.5 The Senate had previously “proposed allowing new deductibles of up to 2 percent on roof damage claims . . .”, but the House rejected this due to concerns of “increased out-of-pocket costs for homeowners who need to replace damaged roofs.”6 There have been other ideas in the Legislature on how to approach the property insurance system, such as House Speaker Chris Sprowls’s previous suggestion that “lawmakers should give more time for property insurance changes made in 2021 to fully take hold.”7

On Tuesday, April 26, 2022, DeSantis issued a proclamation with more details about this upcoming session stating he was “calling for a special session to consider legislation related to property insurance, reinsurance, changes to the Florida Building Code to improve the affordability of property insurance, the Office of Insurance Regulation, civil remedies, and appropriations.”8 A news release from DeSantis’s Communications Director regarding the proclamation and special session stated that the session will be “commencing at 9:00 a.m., Monday, May 23rd, 2022, and extending no later than 11:59 p.m., Friday, May 27th, 2022.”9 DeSantis has also stated that his reason for calling this session now is to attempt to take action before the 2022 Atlantic Hurricane Season.10 The 2022 hurricane season begins on June 1, 2022, and goes through November 30, 2022.11

An important issue to look out for during this special session will be – how potential legislation could have a costly effect on Florida homeowners and their mortgages.

In a standard mortgage, replacement cost value is required.12 The difference between actual cash value and replacement cost value is actual cash value accounts for the items’ deprecation, while replacement cost value does not.13 This is important because – when insurance companies sell an actual cash value policy to a homeowner, most homeowners with a mortgage will then be in violation of their mortgage covenants and federal regulations requiring that the entire home be insured at replacement cost value.

One example of a mortgage financer requiring replacement cost value is Fannie Mae, which states under its coverage requirements:

Property insurance for properties securing loans delivered to Fannie Mae must protect against loss or damage from fire and other hazards covered by the standard extended coverage endorsement. The coverage must provide for claims to be settled on a replacement cost basis. Extended coverage must include, at a minimum, wind, hurricane, civil commotion (including riots), smoke, hail, and damages caused by aircraft, vehicle, or explosion. Typhoon coverage is required for security properties located in Guam.14

This could have far-reaching effects on closing agents, real estate agents, property buyers, mortgage companies, and banks wanting to sell their federally backed mortgages. Homeowners could then be subject to force-placed insurance with exorbitant rates.

Force-placed insurance is a strategy for lenders to protect their financial interest by the lender stepping in and buying an insurance policy on a home if the property owner’s insurance was canceled, lapsed, or insufficient.15 In force-placed insurance, “the lender pays for the insurance premium upfront and then adds the premium cost on to your monthly mortgage payment. Force-placed insurance may come out of your escrow account.”16 Force-placed insurance is also much more expensive than typical home insurance and can cost “four to 10 times more than a typical homeowners insurance policy.”17 Will the Florida legislature pass something during this special session that would lead to many homeowners paying these expensive premiums for force-placed insurance?

The insurance industry is aware of all the potential problems this could pose but is not forthcoming with the ramifications for homeowners.

As a policyholder, it is important to be aware of this upcoming legislative special session. It will also be important to follow along with the special session once it begins to know how it could affect you, your insurance policies, and your mortgage.

Thought For the Day

It is much more important to kill bad bills than to pass good ones.
― Calvin Coolidge
1 Romy Ellenbogen & Kirby Wilson, DeSantis announces May special session on Florida property insurance, Tampa 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, Glossary, The Florida Senate, https://www.flsenate.gov/reference/glossary#S.
3 Ellenbogen & Wilson, supra note 1.
4 Id.
5 Id.
6 Id.
7 Id.
8 Taryn Fenske, News Release, Calling on the Legislature to hold a special session regarding property insurance, Florida Governor Ron DeSantis, April 26, 2022, https://www.flgov.com/2022/04/26/calling-on-the-legislature-to-hold-a-special-session-regarding-property-insurance/.
9 Id.
10 Ana Ceballos, DeSantis sets dates for session on rising property insurance rates, Tampa Bay Times, April 26, 2022, https://www.tampabay.com/news/florida-politics/2022/04/26/desantis-sets-dates-for-session-on-rising-property-insurance-rates/.
11 Id.
12 Pat Howard, How much homeowners insurance is required by mortgage lenders? Policygenius, January 12, 2021, https://www.policygenius.com/homeowners-insurance/mortgage-lender-requirements-for-homeowners-insurance/.
13 Homeowners Insurance Replacement Cost Vs. Actual Cash Value, Allstate, December 2021, https://www.allstate.com/tr/home-insurance/actual-cash-value-replacement-cost.aspx.
14 Selling Guide, Fannie Mae, December 15, 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-General-Property-Insurance-Coverage-12-15-2021.htm.
15 Lucy Lazarony, What Is Force-Placed Insurance?, Forbes Advisor, September 29, 2021, https://www.forbes.com/advisor/homeowners-insurance/force-placed-home-insurance/.
16 Id.
17 Id.