Lender Requirements on Mortgaged Property
A lender may NOT engage in these activities:
- Require more than a $10 fee for substitution of an insurance policy.
- Require the borrower, as a condition of any financing, to place insurance with any particular agent, solicitor or insurer.
- Use or permit the use of any information in their file, including the insurance policy covering the property, for the purpose of soliciting insurance, or make any such information available to any other person, unless the borrower has furnished specific written permission. (See topic on "Privacy")
- Require a borrower to furnish evidence of insurance more than 15 days prior to the termination date of an existing policy.
- Require the borrower to pay directly or indirectly any charge to the lender for substitution fees. The law permits a maximum $10.00 substitution fee which can be charged to the lender by the agent or company, upon the sale or transfer of the lenders ownership interest in real or personal property, but prohibits the lender from passing on the fee to the borrower.
- A lender, requiring a borrower to secure insurance coverage before providing a mortgage loan, cannot refuse a binder as evidence of insurance. If the binder is issued by a licensed agent who is appointed by the company whose name is on the binder. The binder must be accompanied by evidence of payment of the premium and be replaced by an original policy within 30 days of the binder issuance date.
- A lender may not require a borrower to purchase homeowners insurance coverage, mobile or manufactured home insurance coverage, or other residential property insurance coverage in an amount that exceeds the replacement value of the dwelling and its contents, regardless of the amount of the mortgage or other financing arrangement entered into by the borrower. A lender may not include market value of the land on which a dwelling is located in the replacement value of the dwelling and its contents.
A lender may:
- Require evidence of coverage in an amount sufficient to cover the debt.
- Require insurance with an insurer authorized to do business and having a licensed agent in Texas.
- Refuse to accept insurance with a particular insurer on reasonable and nondiscriminatory grounds relating to its financial soundness or ability to service the policy.
- Provide adequate insurance if the borrower fails to do so within 15 days of the termination date of an existing policy.
- Require an agent-of-record designation signed by the borrower except on renewal policy issued by the same agent or company providing the expiring policy.
- Furnish a copy of the policy to one who assumes the loan.
- Process a claim under the terms of the policy.
- Request cancellation of a policy which covers foreclosed property and receive the refund of unearned premium.
A lender must:
- Notify an insured on residential property insurance what requirements the insured must satisfy before the lender will release insurance claims proceeds within 10 days of receiving claim check.
- Endorse a claim check on residential property (or provide a reason for endorsement denial) within 10 days after a request for endorsement is received.