Errors and Omissions Insurance for Mortgage Bankers and Brokers
Our Mortgage Bankers errors and omissions insurance (E&O) programs are specifically tailored to each mortgage banker or broker. Our errors and omissions insurance for mortgage bankers covers a wide variety of services at a reasonable premium.
Our E&O insurance programs provide coverage for the following types of professionals:
- Mortgage Bankers
- Mortgage Brokers
- Title Agents
- Escrow Agents
- Independent Contractors
Our errors and omissions insurance policies do not penalize mortgage bankers that only focus in one area by charging them for the risk of multiple lines of business. On the other hand our mortgage bankers errors and omissions insurance policies can cover those mortgage bankers insurance agents that provide multiple professional services.
Let us design a proper mortgage banker errors and omissions insurance policy for you today. Please feel free to call to discuss your Company’s needs with one of our licensed professionals.
- What Is E&O Insurance?
- Why Buy E&O Insurance?
- Claims Scenarios
- Many Banks/Stockholders Require It
- What is important in buying E&O Insurance for a Mortgage Broker
- About Claims made coverage
- How can I buy E&O Insurance?
- How Much Does it Cost?
What Is E&O Insurance?
Errors and Omissions Insurance (E&O) helps protect a company, its employees and others from claims alleging negligence in performing or failing to perform Professional Services. Almost any professional can be held both professionally and personally liable for their own negligence and for those they supervise. In some professions such as doctors and lawyers it is called malpractice. In other professions such as real estate agents, mortgage brokers, title agents, architects, engineers and others it is called errors and omissions. E&O insurance provides protection both the legal costs of defending an allegation and from the cost of an ultimate indemnity payment based on a financial loss of another party. Legal costs alone can financially impair a company into bankruptcy.
Why Buy E&O Insurance?
Many people would not consider driving a car, owning a home or even having a contractor build a deck without appropriate insurance. Yet, they will conduct millions of dollars in real estate transactions without ever considering liability insurance. Claims happen every day in almost every industry, mortgage brokers and bankers are no exception. Professional liability risk, unlike credit risk, is a personal liability tort. This means that a corporate shell cannot protect an individual from litigation relating to their own negligence or the negligence of those they supervise. Today’s real estate market is rapidly changing and mortgage brokers are increasingly under scrutiny for failing to properly advise clients of their options, including the effect of changes in interest rates, ability to refinance and ability of a property to sell in excess of a mortgaged amount.
Mortgage Broker Claims Examples
- Failure to properly qualify a lender who subsequently was delinquent. In this case an individual was given a second mortgage on her home to pay off credit card debt. Within one year, the plaintiff was back in debt and could not pay the new credit card debt, the first or the second mortgage. After seeking the advice of a credit counselor (suggested by the mortgage broker), the Plaintiff sued because the mortgage broker should have known her history and that she would have been unable to pay. Result. Payout of $27,000 plus legal.
- Failure to properly advise a client of risks and age discrimination. In this case the mortgage broker convinced an elderly couple to refinance a shopping center at a slightly higher fixed rate than they were paying because interest rates were on the rise. The client paid a locking fee of $300,000 on the mortgage and the loan was to be converted from non-recourse to a recourse loan. Family members halted the transaction and alleged bad faith and discrimination. Because of the amount of time that transpired in litigation (interest rates increased and a major tenant left) they were no longer were able to refinance at a good rate. The potential loss is in excess of $5,000,000.
- Failure to properly review loan documents. In this case a mortgage broker obtained loan documents from a prospective lender. The documents, including bank statements and tax returns were forged. The borrower defaulted and the bank alleged the mortgage broker was negligent by not validating bank statements and other documents provided. Given the drop in the market prices of real estate, this case has the potential of costing over $300,000 plus legal defense.
Many Banks/Stockholders Require It
The increase in corporate scandals has led to tighter internal controls at major banks. Most banks now require that all vendors, including mortgage brokers, have E&O Insurance in order to do business with them. One of our banks requires $5 million in limits, however, most still only require $1 million.
What is important in buying E&O Insurance for a Mortgage Broker
E&O policies vary from carrier to carrier. However, there are a couple of key features that could be excluded from many policies.
- Coverage for innocent insureds (dishonesty coverage)
- Coverage for independent contractors
- Coverage for pollution related claims
- Coverage for claims relating to discrimination
- Ability to purchase an extended reporting endorsement
About claims made coverage
Most E&O policies are written on a “claims made and reported” policy form. This means that claims must both occur on or after a retro active date and be reported in the policy period or in some cases during an extended reporting period (usually 12 months) that is purchased separately. Coverage for claims occurring prior to the first date you were insured typically are not covered and claims occurring subsequent to the policy period are also typically not covered. The carriers want policy holders to maintain continuous E&O coverage.
How can I buy E&O Insurance?
E&O insurance should be purchased through an agent or broker with direct experience in real estate E&O. We specialize in real estate E&O and build custom programs for agents, brokers, mortgage brokers/bankers and other real estate professionals. E&O insurance is very specific to each business and buying the wrong type of coverage can be very costly. To obtain coverage you will need to fill out an application, provide some financial and claims history information and typically some type of resume or Bio on the company’s principals.
How Much Does it Cost?
The cost of E&O insurance is dependent upon many factors such as revenue, state of practice, loss history, number of agents, etc. It also takes into account the principals are involved in another business, such as a real estate agency, mortgage banking entity or a development and whether those entities are properly insured. A quote cannot be provided without an application and a submission, but relative to the coverage it is inexpensive.