New force placed insurance mortgage restrictions. Failure by a lender to pay attention to these rules is severe.  In March, Wells Fargo along with others settled a class action lawsuit over its force placed insurance practices, resulting in a reported out of court settlement of about $19 million.  As part of the settlement Bank of America has agreed to forgo commissions on force placed insurance for a period of three years.

The rules originate from the Dodd-Frank reform and the Consumer Protection Act which requires a lender servicing a loan to verify and document that the homeowner’s insurance policy has lapsed and that there is no insurance on the property before imposing forced placed insurance (also known as LPI charges).  In addition servicers must provide each borrower with advanced notice prior to obtaining a forced placed policy and notify the borrower annually before renewing the policy.  The first notice is to be sent at least 45 days before purchasing the LPI policy.  The second notice is to be sent at least 15 days before charging the borrower for LPI coverage.

Generally speaking if the servicer requires the insurance to be escrowed, then the servicer must pay the insurance bill even if funds need to be advanced.

Should the borrower subsequently provide evidence of insurance, then the servicer must cancel the LPI insurance within 15 days and refund any premiums charged for duplicate coverage to the borrower.

Borrowers need to know they have rights regarding force placed insurance.


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