Escrow and a premium surprise

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Question:

If we have an insurance policy that has a due date of February (bank paid the policy in full from escrow) and we receive a bill from the insurance company in July due to a change that the customer made to the policy (e.g., added a jewelry rider), are we required to pay that bill for the premium increase due to the change or can we require the borrower to pay it?

Answer:

If you are considered a large servicer (under the Mortgage Servicing Rules), you must pay it even if the escrow account will go deficient. If you are not a large servicer, you don’t have to pay it. However, if you force-place the insurance, the charge cannot exceed what the insurance would have cost if paid out of the escrow account. Beyond that, it becomes a contractual issue.
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Learn more about David Dickinson’s webinar Escrows: All you need to know