Force-Placed Insurance Premiums

Yes, we believe you may reamortize the loan and add the amount of the force-placed premiums to the borrower’s periodic payments, since your loan agreements permit you to add such premium payments to the loan amount.

Delinquent Property Tax Payments

The answer is less clear regarding delinquent property tax payments, since your loan agreements do not expressly permit those amounts to be added to the loan amount. However, because your loan agreement requires the borrower to pay the property taxes, we believe there could be a defensible argument for adding the delinquent tax payments to the loan amount and reamortizing the loan payments if there are other provisions in the note or mortgage document that address your rights to protect the collateral. Our advice is to ask your bank counsel to review the note and mortgage document for an answer to this question.

Going forward, we recommend establishing a uniform policy for the treatment of delinquent property taxes as part of the implementation process for the upcoming TILA-RESPA integrated mortgage disclosure rules, which will require you to disclose “the consequences if the consumer fails to pay property costs” on the new Closing Disclosure form. 

For resources related to our guidance, please see below:

• Regulation Z, 12 CFR 1026.38(l)(7)(i)(B) (The Closing Disclosure must include a “description of the consequences if the consumer fails to pay property costs, including the actions that a State or local government may take if property taxes are not paid and the actions the creditor may take if the consumer does not pay some or all property costs, such as adding amounts to the loan balance, adding an escrow account to the loan, or purchasing a property insurance policy on the consumer’s behalf that may be more expensive and provide fewer benefits than what the consumer could obtain directly.”)