X-Force-Placed Insurance

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    This question was originally posted in our Compliance Master Group forum by TheBank.

    Am I reading this correctly that when we identify a RESPA loan that lacks hazard insurance, we should send the first letter requesting insurance, then wait 30 days and second the second letter, then wait another 15 before we can purchase/charge for a force-placed policy? And for a renewal of a force-placed policy, we only need to send one letter, wait 45 days and then purchase the forced placed insurance?

    Also Under Escrow Provisions please help me understand when “inability to disburse funds” exists. It sounds like to me if the loan is 31 days past due, is without hazard insurance, the bank must pay for the insurance, even if there is a shortage in the escrow account. (our bank is not a small servicer)


    1) You are correct on the timing of the notices. However, you can purchase insurance before day 46, but you must wait until at least the 46th day to charge the borrower. And if they prove they had coverage during the notification period then you would have to absorb the cost of the overlapping forced-placed insurance.

    Commentary: Paragraph 37(c)(1)(i).
    1. Assessing premium charge or fee. Subject to the requirements of § 1024.37(c)(1)(i) through (iii), if not prohibited by State or other applicable law, a servicer may charge a borrower for force-placed insurance the servicer purchased, retroactive to the first day of any period of time in which the borrower did not have hazard insurance in place.

    2)You are correct on the renewal notice – you must wait 45 days before you charge the borrower.

    3) When a delinquent consumer’s escrow account has insufficient funds to cover payment of the consumer’s hazard insurance premium, generally, you will have to advance the funds through escrow to continue coverage. You can add this cost to the escrow balance or otherwise seek reimbursement from the consumer for the funds you advance.

    Examples from the Commentary:
    17(k)(5)(ii)(A) when inability exists:
    1. Examples of reasonable basis to believe that a policy has been cancelled or not renewed. The following are examples of where a servicer has a reasonable basis to believe that a borrower’s hazard insurance policy has been canceled or not renewed for reasons other than the nonpayment of premium charges:
    i. A borrower notifies a servicer that the borrower has cancelled the hazard insurance coverage, and the servicer has not received notification of other hazard insurance coverage.
    ii. A servicer receives a notification of cancellation or non-renewal from the borrower’s insurance company before payment is due on the borrower’s hazard insurance.
    iii. A servicer does not receive a payment notice by the expiration date of the borrower’s hazard insurance policy.

    Reg X 1024.17(k):
    (B) When inability does not exist. A servicer shall not be considered unable to disburse funds from the borrower’s escrow account because the escrow account contains insufficient funds for paying hazard insurance premium charges.

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