If a homeowner's insurance lapses, which action does the lender commonly take to protect the property?

• A. Shorten the loan term
• B. Force-placed insurance (correct)
• C. Increase the interest rate
• D. Cancel the loan

Answer: (B)

When the homeowner’s policy lapses, the lender’s priority is to keep the property insured to protect the loan collateral. The common step is to place force-placed insurance, meaning the lender obtains a policy in the property’s name and adds the cost to the loan or escrow. This ensures continuous coverage even if the borrower doesn’t maintain their policy, preventing gaps that could expose the lender to risk if a loss occurs. Force-placed policies are usually more expensive and offer the lender protection and control over the insured risk, which is why this action is taken. The other options don’t directly restore or guarantee insurance coverage: shortening the loan term, raising the rate, or canceling the loan don’t address the immediate need to maintain property protection.