Contact: Heather Morris; Spencer Fane Britt & Browne LLP (Missouri, USA)
Along with the CFPB’s numerous other mortgage regulations, some regulations concerning force-placed hazard insurance are set to take effect on January 10, 2014. The new regulations, which can be found in 12 C.F.R. § 1024.37, dictate a specific procedure that must be followed before a servicer can charge a borrower for force-placed insurance.
In all circumstances involving force-placed hazard insurance, a servicer must have a reasonable basis to believe that a borrower has failed to comply with the insurance requirements set forth in the underlying mortgage agreement before imposing any fees. At least 45 days prior to charging a borrower for force-placed hazard insurance, a servicer must provide a notice to the borrower. The notice should be provided on model form MS-3(A). In general, the notice must state that the required insurance is expiring or has expired and must notify the borrower that the servicer has purchased or will purchase hazard insurance on behalf of the borrower.
At least 30 days after the initial notice has been sent and no less than 15 days prior to charging a borrower for force-placed hazard insurance, a servicer must provide a second notice. The reminder notice should be provided on form MS-3(B) if the servicer has received no response from the borrower. The reminder notice should be provided on form MS-3(C) if the servicer has received information from the borrower, but has not received evidence of continuous hazard insurance coverage.
After the notice period, a servicer may charge a borrower for force-placed insurance if the servicer has not received evidence that hazard insurance coverage has been continuously in place. Note that although the regulations provide that a borrower cannot be charged until after the notice period, the official staff interpretations clarify that, after a servicer complies with the notice requirements, it may assess a fee for force-placed insurance purchased by the servicer retroactive to the first day that the borrower did not have hazard insurance in place.
With respect to the renewal or replacement of existing force-placed hazard insurance, a servicer must provide a notice at least 45 days prior to charging the customer. The notice should be provided on model form MS-3(D). In the event that the servicer does not receive evidence of coverage, the servicer is not required to provide a reminder notice and may charge the borrower for the force-placed insurance. The regulations further provide that if a servicer that has renewed or replaced existing force-placed insurance receives evidence that the borrower lacked coverage following the expiration of the existing coverage, the servicer may immediately charge the borrower for that period of time, even if the time is within the notice period.
If you have not done so already, now is a good time to begin implementing these soon-to-be-required procedures. As you start using the model notice forms, you should also be aware that form language appearing in SMALL CAPS is required by the regulation to appear on your notice in bold-faced text.
