Bank Insurance - Forced Placed / Foreclosed Property Insurance
By Scott Simmonds, CPCU, ARM, CMC

Once it’s discovered that a mortgaged property is not insured by the mortgagee, coverage must be “placed” in force by the bank.

Most bank mortgage impairment policies (see earlier section of this book) allow ninety days to place alternate coverage from the time it is discovered that an insurance policy has lapsed. Forced-placed policies are one way to insure customer’s property when the customer fails to obtain insurance. The amount of coverage is usually the amount of the outstanding loan. Banks can (in most states) charge the premium back to the customer’s account.

Most forced-placed policies are on a reporting form. The insurance company charges a minimum deposit premium ($500 for a small-to-medium sized bank is not unusual) and reports the property to be covered are made each month to the insurance company. The deposit is used up as the reports of property covered accumulate. Insurers then bill additional premium to the bank.

Be aware of the perils insured and penalties for missed reports. Coverage for foreclosed properties can also usually be added to most policies at a different (higher) premium rate.

Some smaller banks are able to place the property insurance through a local agent. This tends to involve more administrative work on the bank’s part as each property will be individually underwritten by an insurer. There may also be restrictions to coverage for loss by vandalism when a property is vacant and covered by a standard policy.

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