Congress approves restrictions on force-placed insurance
Posted On: December 5th 2013
In response to numerous problems with insurance obtained by a servicer when a borrower’s policy lapses or is canceled, Congress included in the Dodd-Frank Act new restrictions on “force-placed insurance.” New regulations implementing the Dodd-Frank Act amendments to RESPA dealing with force-placed insurance go into effect on January 10, 2014. The purpose of these amendments, as noted by the CFPB, is to “protect borrowers from the unwarranted force-placement of insurance when a servicer does not have a reasonable basis to impose the charge on a borrower.”
Most of the RESPA amendments on force-placed insurance deal with notices that must be provided to borrowers before insurance may be force placed. In addition to implementing these notice requirements, a significant consumer protection was added by the CFPB in the final rule. Servicers are prohibited from purchasing force-placed insurance, and instead must pay the borrower’s existing insurance policy, if there is an escrow account on the mortgage . The CFPB soundly concluded that a servicer should not purchase force-placed insurance when a servicer is able to make disbursements from an escrow account to maintain the borrower’s hazard insurance. As discussed more fully below, this requirement implements the statutory duty under RESPA for servicers to timely disburse funds out of escrow accounts.