RESPA and Forced Placement Reminder Notice

Issue/Inquiry

The Bank has a borrower who has not provided evidence of hazard insurance. The Bank sent out the letters required by RESPA over a 45-day period. The last letter, which was sent out 15 days prior to the actual force-placement, gave an estimate as to what the cost of the force-placed hazard insurance would be. However, when obtaining quotes for the cost, the administrator inadvertently referred to the property as being residential, when it is actually commercial. The Bank obtained new quotes and the cost is approximately $4,000 more than the original estimate. Another letter has been sent to the borrower correcting the estimated cost. Does the Bank have to wait another 15 days before force placing the hazard insurance coverage?

Response Summary

The Bank is required to send a reminder notice to the borrower 15 days before it can force place hazard insurance and assess the borrower with the cost of the premium. If the Bank has not received insurance information from the borrower after the initial notice was sent, the reminder notice must either state the amount of the annual premium or provide a reasonable estimate of the cost, identified as such. Since the Bank did not provide the correct amount of the annual premium, it did not fulfill the content requirement for the reminder notice. As such, the 15-day period only began to run when the corrected notice was mailed.

Response Detail

Under the RESPA forced placement rules, as implemented by Regulation X, a servicer must perform the following before assessing a borrower with any premium charge or fee related to force-placed insurance:

• Deliver to a borrower or place in the mail a written notice at least 45 days before the servicer force places insurance and assesses the borrower with such charge or fee
• Deliver to the borrower or place in the mail a written reminder notice at least 15 days before force placing the hazard insurance and assessing the borrower with such a charge or fee. 12 CFR §1024.37(c)(1).

The initial notice asks the borrower to promptly provide the servicer with insurance information. If the borrower does not provide this information, the reminder notice must disclose the cost of the force-placed insurance, stated as an annual premium, or, if the servicer does not know the cost of force-placed insurance, a reasonable estimate shall be disclosed and identified as such. 12 CFR §1024.37(c)(2)(vii),(d)(2)(i)(D).

In this case, the Bank sent a reminder notice with an incorrect amount for the annual insurance premium. This amount cannot be accepted as an estimate since it is not identified as an estimate or reasonably related to the actual cost. The 15-day period did not begin to run when the initial reminder notice was mailed as the Bank did not fulfill the content requirement.

The Bank will be allowed to force place hazard insurance and assess the borrower with the cost of the premium 15 days after the corrected reminder notice was mailed, since this is the notice that fulfilled the content requirement for a reminder notice.

This entry was posted on Tuesday, May 28th, 2019 at 6:00 am.