Topic: Force-Placed Insurance
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The Illinois Collateral Protection Act provides that we may require a final balloon payment to collect the costs of force-placed collateral protection insurance within thirty days after the last scheduled payment required by the credit agreement. If we choose to do this for an automobile loan for which we have issued a coupon book, do we need to send the borrower an updated coupon book?
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No, we do not believe you need to send an updated coupon book after force-placing collateral protection insurance for an automobile loan that will be repaid as a balloon payment at the end of the loan term. The Collateral Protection Act provides that pursuant to the terms of a credit agreement, creditors may require borrowers…
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A loan customer who owns multiple rental homes was dropped by their hazard insurance carrier after making three claims. The customer is current on their loan and makes monthly payments into a hazard insurance escrow. We used the escrowed funds to purchase insurance for the properties. Would this be considered force-placed insurance? The premiums are covered by the funds deposited into the borrower’s escrow account, so we have not posted the fees to the account as “force-placed.” We are a small servicer.
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We believe the insurance you obtained for the borrower would be considered force-placed insurance, even though you are able to pay for the premiums out of the borrower’s escrow account. Regulation X defines force-placed insurance as “hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures…
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We have a customer for whom we force place hazard insurance (monthly) and flood insurance (yearly). We are aware that force placing the flood insurance is a M.I.R.E. event and send the flood insurance notice yearly. Do we also need to provide the flood insurance notice on a monthly basis since we are increasing the loan each month through the force placement of hazard insurance? Also, if we do not receive a signed copy of the flood insurance notice from the borrower, should we document that the notice was sent with no response?
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Whether the forced placement of hazard insurance on a property in a special flood hazard area triggers the requirement to send a flood insurance notice to the borrower depends on how the borrower is charged for the hazard insurance premiums and fees and whether your loan agreement permits advances to cover such costs. The flood…
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We have a junior mortgage lien secured by single-family residence in a flood zone for which we have force-placed flood insurance. The loan has been charged off and we have obtained a money judgment on the note, which we are attempting to collect and will record against the property. If we release the mortgage on the property, can we cancel the flood insurance? Will recording the judgment and pursuing collection affect our ability to cancel the flood insurance?
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Yes, we believe that your bank may cancel the force-placed flood insurance on the property if you release your mortgage. However, it may be prudent for your bank to refrain from recording the judgment lien against the property if you want to cancel the flood insurance. Flood insurance is required at the time a bank…
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Do the 45-day notification rules for force-placed insurance apply to commercial property loans or just consumer mortgage loans?
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With respect to force-placed hazard insurance governed by the RESPA servicing rules, the requirement to notify borrowers before charging for force-placed insurance applies only to closed-end consumer mortgage loans. Loans made for a business purpose are exempt. However, with respect to force-placed flood insurance, the requirement to wait 45 days before charging a borrower for…
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We have a higher-priced mortgage loan that is in foreclosure. There are not enough funds in the escrow account to pay the hazard insurance policy premiums. Do we have to keep paying the premiums? The borrower has not responded to our notices about the escrow account shortage or a request to discuss the possibility of finding a cheaper insurance policy. We qualify as a small servicer, but we typically do not force place hazard insurance because we have a blanket insurance policy to protect our collateral interest whenever a borrower’s hazard insurance policy lapses.
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No, neither federal nor state law requires your bank to continue paying the premiums or to force-place the insurance. However, you should review the terms of both your loan documents and your blanket policy to ensure that you haven’t committed to force-place insurance before making a claim against the blanket policy. Regulation X requires your…
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We understand that the 2016 Mortgage Servicing Final Rule amended some of the force-placed insurance notice requirements under Regulation X. Do those changes affect the notice requirements in Illinois?
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Yes, because the Illinois law includes a safe harbor for servicers that substantially comply with the force-placed insurance notice requirements in Regulation X. In other words, if you comply with Regulation X (including the recent changes to the force-placed insurance notice requirements), you are deemed to comply with the Illinois law. For your reference, the…
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An Amish customer told us that they are not required to pay for hazard insurance protecting the property securing a real estate loan. Is that true?
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Hazard insurance plays a major role in mitigating the risk of loss of collateral in real estate loans, and examiners traditionally cite inadequacies in collateral insurance as technical exceptions on safety and soundness principles when reviewing loan files. However, apart from flood insurance, we are not aware of any banking laws or regulations that expressly…
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The collateral protection insurance coverage has lapsed on a property that is subject to a residential mortgage loan. However, the borrower has filed for bankruptcy, and we have received notice of the automatic stay. Can we charge the customer for the forced placement of insurance coverage? Our account agreements permit us to force place insurance and charge the borrower.
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No, in this case, you most likely cannot charge the customer for the forced placement of insurance coverage without court approval. Regulation X requires that you send certain notices before you may charge the borrower for force placing insurance, and there is no exception made for borrowers in bankruptcy. At the same time, the federal…
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If we need to force-place property insurance for a mortgage loan, or if the borrower fails to pay property taxes, can we add those amounts to the borrower’s periodic payments for the next twelve months? Our mortgage documents state that we may add force-placed insurance charges to the loan, but they do not state that we may charge the borrower for our payment of delinquent taxes (although the agreement does require the borrower to pay the taxes).
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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…