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What you need to know about force-placed insurance

Believe it or not, a servicer cannot just add force-placed insurance to your mortgage loan account without following a specific protocol as set out in Regulation X of the Real Estate Settlement Procedures Act (12 C.F.R. 1024.37).

What is force-placed insurance ("FPI")? It means "hazard insurance obtained by a servicer on behalf of the owner or assignee of the mortgage loan that insures the property securing the loan.   See 12 C.F.R. 1024.37(a).

The servicer cannot impose FPI premium fee unless it has a reasonable basis to believe that the borrower has failed to comply with the loan's requirement to maintain hazard insurance.  See 12 C.F.R. 1024.37(b).

Before imposing a FPI premium fee, the servicer must:
  1. Give written notice (see #1 below) to the borrower at least 45 days before charging a premium fee;
  2. Give written notice (see #2 below); and
  3. Not have received proof from the borrower proof that the borrower has continuously had hazard insurance coverage on the property.        See 12 C.F.R. 1024.37(c)

NOTE:  Notice #2 cannot be sent to the borrower until at least 30 days after Notice #1 was sent.   Notice #2 must be sent at least 15 days before the FPI premium fee is imposed.

            Notice #1 - Initial notice.  Must state:
  • The date of the notice
  • That borrower needs to provide proof of hazard insurance policy that insures the property
  • That hazard insurance is required and servicer has/will purchase insurance at the borrower's expense
  • That the servicer has/will purchase hazard insurance for the property
  • That the existing hazard insurance policy has/will expire and there is no evidence of coverage past the expiration date
  • That borrower must promptly provide proof of insurance coverage
  • A description of the requested insurance information and how the borrower can provide the information to the servicer
  • A statement that FPI may cost more than borrower's insurance policy and may not provide as much coverage as the borrower's insurance policy
  • The servicer's telephone number for inquiries.     See 12 C.F.R. 1024.37(c)(2)

           Notice #2 - Reminder notice.  Must state:
  • The date of the notice
  • That this is the second and final notice
  • Repeat information provided/requested in Notice #1
  • The annual premium cost of the FPI or a reasonable estimate if actual cost not known.
                                                    See 12 C.F.R. 1024.37(d)(2)

Within 15 days of receiving proof that the borrower has had in place hazard insurance that is in compliance with the loan's requirements, the servicer mustcancel the FPI and refund all FPI premiums paid (along with related fees) for any period of overlapping insurance coverage.   See 12 C.F.R. 1024.37(g)

All FPI premiums imposed must be bona fide and reasonable.    See 12 C.F.R. 1024.37(h)

9 Comments to What you need to know about force-placed insurance:

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