Tracking Insurance On Improved Real Property

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Question:

Our Bank is investigating the possibility of no longer tracking insurance on improved real property under a Blanket Mortgage Security Policy we currently have in place. Provided that the Bank: 1) verifies insurance coverage at closing by obtaining a copy of the Declaration Page (i.e., Evidence of Property Coverage); 2) notifies the mortgagor once a year of the requirement for insurance and; 3) force places coverage for those properties known to be lacking coverage , we feel we do not need to track insurance for improved real property and equipment and inventory residing at the real property location once initial evidence is obtained.My question is by doing this, would we meet all Regulatory Compliance standards as far as flood insurance is concerned? Also, how common is this practice of 'not tracking insurance'?

Answer:

Answer by Andy Zavoina:

I do not know how common this is in the industry as a whole, but I would not recommend any variance from the disclosure, notice and timing requirements applying to flood insurance.

Those accounts with escrows would require monitoring as you need to know when and whom to remit payments to. And if there is an escrow and flood insurance is required, it must be escrowed as well.

Answer:

Answer by Scott Simmonds:

This is an area I have advocated for many years. Most mortgage impairment policies no longer require regular checking of insurance and/or tracking of payments. As you stated, there are requirements at loan closing and you do have to respond to knowledge of policy cancellation. Check with your insurance advisor to be sure.

Regarding flood, many mortgage impairment policies exclude flood.

First published on BankersOnline.com 1/20/03