Charging Customer for Force Placed Hazard Insurance

Can a bank charge the borrower for force-placed hazard insurance effective the first day of coverage?

Under the new force-placed insurance rules of the Regulation X, which gives effect to the Real Estate Settlement and Procedures Act, a bank may not assess the cost of the premium or fee against a borrower for force-placed hazard insurance unless the notification requirements have been fulfilled. This generally means that an assessment cannot be made until 45 days after the required notice has been delivered or placed in the mail to the borrower.

The bank, however, can force place hazard insurance from the first day of a lapse in coverage. While the assessment cannot be made until the 45 day period has elapsed, the bank can charge the borrower for force-placed insurance the bank purchased, retroactive to the first day of any period of time in which the borrower did not have hazard insurance in place. Official Interpretations, 37(c)(1)(i)-1.

If the borrower provides proof that it had hazard insurance coverage in place during the period covered by the force-placed insurance that complies with the loan contract’s requirements, the bank must cancel the force-placed insurance and refund to the borrower any premium charges or fess paid by the borrower for the force-placed coverage during the any period of overlapping coverage. 12 CFR 1024.37(g).

This entry was posted on Monday, January 20th, 2014 at 8:24 pm.