Insurance Question as note holder

7 Replies

Hi All,

I received an email from my servicer the other day saying that my borrower would like to file an insurance claim for a leaky roof. This brought many questions to mind real quick. In further discussion with my servicer, the borrower appears to be under the impression that I had placed insurance on the property, which I never have.

Looking through my records from the purchase/due diligence I have a copy of a "Homeowners Policy" in the borrower's name and address. I can also previous lender/servicer was collecting insurance payment through escrow, would this be indicative of placed insurance? I've never used placed insurance so not sure.  I don't however, have anything actually saying that the previous lender actually took out the policy.

I feel like this might be a big deal, but I'm a newbie so please go easy on me.

Thanks.

James

First of all, a leaky roof is not as bad as a house burning down. So, that's a good thing. What servicer is it? Some servicers will automatically place forced place insurance on the loan if the borrower does not have their own (after the proper letter cycle). Whether or not the loan is being escrowed for insurance is not indicative one way or the other as to whether this is for FPI or the borrower's own policy. If your servicer is coming to you about an insurance claim, that likely means the servicer thinks you may have FPI in place. I would call your servicer. Is the loan currently being escrowed for insurance? 

Thanks for the reply @Jamie Bateman . My servicer is Madison, though it was previously at August. I never had FPI on it, at least not by my order. I believe only taxes are being escrowed currently.

How does FPI work exactly? Is it something I would need to go find or does Madison provide that kind of service? I assume it would probably be escrowed at the borrower's expense? Also imagine, it might be cheaper for borrower to pursue his own policy?

This is a Performing Note by the way.

I’m newer to notes too, For me, making sure a property has insurance is a way to protect against the risk of damage occurring that can make the collateral to the loan worthless as collateral.  

Also, as an owner of a CFD too, I'd think this is even more true as some property condition issues may fall back to me.

As Jamie said, for some servicer syou don’t have to ok it, it not an option.  So, you may want to check with them. If not, it could be a hunt to find out if there’s still insurance in place and if it applies.  

If it has force placed insurance you would know it....as you would have paid for it. The escrow is likely just their regular homeowners. They are probably making you aware as you have a mtg, you should also be named on policy, as far as having to endorse the check anyway b

Call Madison and ask for more detail. You can also try calling the insurance company you saw in the file to see if that policy is still active (and inform them that you need to be added to it).  

Madison does offer FPI (from a third-party vendor) but you would have agreed to that. It could be just that Madison was letting you know, and the borrower is confused (that part is quite likely). 

This is something you'll want to confirm and track for your next note purchase. 

@James LaRocque

Also on another note, a roof leak typically is not an insurable event- and if you had FPI it is up to you (not them) on if you want to file a claim - and if you did - does the borrower have the amount to cover the deductible. Many policies carry a $2500 or $5k deductible they would need to pay…

Originally posted by @Chris Seveney :

@James LaRocque

Also on another note, a roof leak typically is not an insurable event- and if you had FPI it is up to you (not them) on if you want to file a claim - and if you did - does the borrower have the amount to cover the deductible. Many policies carry a $2500 or $5k deductible they would need to pay…

Chris is correct, most policies (at least ours anyways) don't cover roof leaks, especially for roofs over 15 years.