Whether the borrower’s failure to pay the new or additional payments is an event of default depends on the terms in your note. If the failure to make full monthly payments and the failure to maintain insurance on the property are both events of default in the note, then the borrower most likely is in default and subject to a valid foreclosure.

Having said that, we do not have enough facts to opine on the consequences of foreclosing on this specific loan, and we should note that force-placed insurance has been a hot button for the regulators (and the media) as of late. There could be UDAAP concerns with respect to foreclosing on a loan solely due to non-payment of the difference between the higher amount of the force-placed insurance and the cost of the insurance originally obtained by the borrower, particularly if it the cost of the force-placed insurance is substantially higher. (Other factors also could be relevant to UDAAP risk, such as if the bank is earning fees from force-placing the insurance, or if the insurance was force-placed with an affiliate of the bank. We understand that these factors are not relevant to this situation.)  In our view, subject to the above assumptions, your bank needs to assess its UDAAP risk exposure in this case and then make a business decision as to whether to proceed with foreclosure. If the premiums for the force-placed insurance are substantially higher, you may wish to consult with your bank’s legal counsel on this question.