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Mortgages require homeowners to maintain adequate insurance on the property so that the lender’s interest is protected in case of fire or other casualty. If a borrower lets the hazard insurance coverage lapse, the loan servicer can obtain insurance coverage at their expense.
This is called force-placed or lender-placed insurance. Typically the servicer adds the cost of the force-placed insurance to the borrower’s loan payment.
For more specific rules and information on Force Placed Insurance go directly to the Consumer Federal Protection Bureau (CFPB) website.
Timing of the Required Notices
The servicer must send the first notice at least 45 days before purchasing a force-placed insurance policy.
The servicer must then send a second notice (a reminder notice) no earlier than 30 days after the first notice and at least 15 days before charging the borrower for force-placed insurance coverage. This notice must include the cost of the force-placed insurance.
If the loan is escrowed, the Servicer must generally pay the existing policy pursuant to RESPA rules, the servicer generally must keep an existing insurance policy in place if the borrower has an escrow account from which the servicer pays the insurance bill -- even if the servicer needs to advance funds to the borrower’s escrow account to do this.
The servicer does not have to continue existing coverage (and can purchase a force-placed policy) if it has a reasonable basis to believe that: the borrower’s insurance is being canceled for reasons other than nonpayment, or the property is vacant.
What happens if the Borrower Provides Proof of Insurance Coverage ?
If the borrower subsequently provides evidence that they have insurance coverage in place, the servicer must: cancel the force-placed insurance within 15 days of receiving evidence of existing insurance, and refund any premiums charged for duplicate coverage to the borrower.