Most homeowners have prepaid insurance, courtesy of their escrow accounts with their mortgage lenders. When a homeowner like yourself finds that he or she can no longer afford to make mortgage payments and his or her lender begins the foreclosure process, where does the prepaid insurance go? That all depends on whether or not your escrow account is ahead or behind on payments too.
When You Are Behind on Escrow Payments
When your mortgage lender has paid your insurance in advance through your escrow account and your monthly mortgage payments include part of that prepaid amount, you have to pay the mortgage company back. You do not get any of the refunded insurance amounts because the mortgage company will expect you to protect their interests as well as your own until you are evicted from your home or you have redeemed your home and paid the overdue amounts in full. Even if the insurance is prepaid for six months past the time you are ejected from your home, you will not get that back, because technically you never paid that money to your lender.
When You Are Ahead on Escrow Payments or You Pay the Insurance Separately
In this instance, you are paid up to a year ahead on your escrow payments and/or you pay your insurance separately from your monthly mortgage amount. That is money in excess of the interests of your lender. You are already doing what a judge could force you to do until you vacate the property, but when the insurance is paid up beyond that, you might be able to recoup some of that money. It depends on whether or not your lender sells the property quickly after you have left and/or you provide proof of an alternate residence to the insurance company to obtain the remaining months of insurance back. Once you no longer live in your house, it is technically the property of your lender and up to them to cover their interests.
State Variants of the Law
Of course, all of this may not be applicable to the state in which you reside. The judge in your foreclosure case could also decide against you on any detail in the matter, and in your state that might be perfectly legal. Some states have no redemption period at all, disallowing the homeowner any time to pay up and keep his or her home, which means that prepaid insurance could, essentially, go back into the homeowner's pocket. You will have to check the laws in your own state to see how this plays out for your particular case. You can also talk to an insurance company like C & H Insurance to find out what may happen in your particular situation.