Force Placed Insurance

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    It is my understanding from the commentary that we should not force place insurance unless we have a reasonable basis to believe a policy has been cancelled or not renewed. Examples were given of: a borrower notifies a servicer that the borrower has cancelled the hazard insurance coverage, and the service has not received notification of other hazard insurance coverage; a servicer received a notification of cancellation or non-renewal from the borrower’s insurance company before payment is due on the borrower’s hazard insurance; and a servicer does not receive a payment notice by the expiration date of the borrower’s hazard insurance policy.

    Many companies do not send out a notice that a payment has been received prior to the expiration date. We do not receive anything at all. All we have is an expired policy. We may receive a renewal a couple weeks after the expiration and we may not. Are we justified in ordering a force placed policy at the expiration of a policy? And, if we did order a force placed policy and the customer provides a new policy with the effective date after the prior expiration date, are we liable for the force placed premium for the lapse in days or can we pass that on to the customer? We certainly do not want to be in a position where our collateral is not insured at any point.


    You may force-place hazard insurance at your discretion but you can’t charge the borrower unless you have a reasonable basis to believe that the borrower did not comply with the contract’s requirement to maintain hazard insurance. If you don’t have the information from the examples you cited above and you “act with reasonable diligence” to determine the status of the borrower’s hazard insurance (e.g. deliver the force-place notification requirements per Reg X) you may charge the borrower for the force-placed insurance. If there is a period of overlapping coverage you are required to reimburse the borrower. I’ve included a couple of citations from Reg X below.

    Comment 37(b)(1) “…If a servicer receives no such information, the servicer may satisfy the reasonable basis to believe standard if the servicer acts with reasonable diligence to ascertain a borrower’s hazard insurance status and does not receive from the borrower, or otherwise have evidence of insurance coverage as provided in § 1024.37(c)(1)(iii). A servicer that complies with the notification requirements set forth in § 1024.37(c)(1)(i) and (ii) has acted with reasonable diligence.”


    Comment 37(g)(2)states:

    Section 1024.37(g)(2) requires a servicer to refund to a borrower all force-placed insurance premium charges and related fees paid by the borrower for any period of overlapping insurance coverage and remove from the borrower’s account all force-placed insurance charges and related fees for such period. A period of overlapping insurance coverage means the period of time during which the force-placed insurance purchased by a servicer and the hazard insurance purchased by a borrower were in effect at the same time.

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