Fires! Foreclosures! Court battles!

By: HousingWire staff
March 25, 2008 2:04 PM CST

Earlier today we published a contributed piece from an attorney on the front lines of the foreclosure mess — and he wrote about a Tennessee Supreme Court case pitting an insurer against a lender. The reason?

The insured property went into foreclosure, and then burned to the ground. When the lender went back to the insurer for restitution, the insurer balked and said the lender had a duty to disclose the foreclosure to it.

We here at HW think it’s likely to end up being a much more common problem. Arson has always been an issue when we’re talking about foreclosures. Here’s an example of the lengths some borrowers will go to:

Faced with foreclosure on her Russellville, Indiana home, Christina Snyder allegedly concocted the kind of plan that now has insurance executives on edge.

According to the county prosecutor, the 31-year-old Snyder allegedly offered to pay a neighbor $5,000 to help her burn down her house and make it look like a botched rape attempt - all in order to claim $80,000 in insurance money. Snyder wanted the neighbor to bind her hands in duct tape, write “whore” on her shirt, and then help her escape once the blaze was set, the prosecutor says. The neighbor demurred, instead reporting Snyder to police.

Faced with that sort of behavior on the upswing, it’s no wonder the insurers are refusing to pay. It’s also possible that, should lenders be required to notify hazard insurers of a pending foreclosure action, those insurers will immediately cancel their contract citing material adverse change. Which would leave lenders and their investor high and dry — and hike loss severity further.

We’ll keep out ears to the ground for the ruling out of Tennessee …

Editor’s note: If you’d like to contribute a story to Housing Wire, shoot an email to editor@housingwire.com and request a copy of our contributor’s guidelines. We’re always open to running content written by knowledgeable industry participants, so long as it’s within our guidelines.