THE SENATE

S.B. NO.

2745

TWENTY-EIGHTH LEGISLATURE, 2016

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

relating to Force-Placed Insurance.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


SECTION 1. The legislature finds that force-placed insurance, also known as creditor-placed, lender-placed, or collateral protection insurance, is an insurance policy placed by a lender, bank, or loan servicer on a home when the property owner's own insurance is canceled, has lapsed, or is deemed insufficient and the borrower does not secure a replacement policy. Force-placed insurance allows a lender to protect its financial interest in the property.

However, the practice of force-placed insurance has attracted increased media coverage primarily focused on the rates charged for force-placed insurance policies. There are concerns regarding whether insurers and lenders are making excess profits on this line of business. Force-placed insurance is usually more expensive than an insurance policy that a property owner can usually obtain on their own. Furthermore, the force-placed insurance policy may have limited coverage and require upfront lump sum costs that the property owner may not be able to afford.

The purpose of this Act is to provide requirements regarding force-placed insurance to ensure that borrowers are given adequate notice regarding their insurance coverage of their mortgaged property and prevent borrowers from paying for costly and limited insurance coverage.

SECTION 2. Chapter 412, Hawaii Revised Statutes, is amended by adding a new section to article 14 to be appropriately designated and to read as follows:

"412:14-   Force-placed insurance; requirements. (a) If a financial institution does not have evidence of insurance coverage of a mortgaged property, the financial institution shall send by first-class mail a written notice to the borrower containing:

(1) A reminder of the borrower's obligation to maintain insurance on the mortgaged property;

(2) A statement that the financial institution does not have evidence of insurance coverage of the mortgaged property;

(3) A statement that the borrower has six months from the postmarked date of the written notice to obtain the required insurance coverage;

(4) A clear and conspicuous statement of the procedures by which the borrower may demonstrate that the borrower already has insurance coverage; and

(5) A statement that the financial institution may obtain force-placed insurance coverage at the borrower's expense if the borrower does not provide demonstration of the borrower's existing coverage within six months from the postmarked date of the written notice.

(b) If a financial institution obtains force-placed insurance coverage for the borrower, the force-placed insurance coverage shall provide the following:

(1) Reasonable premium costs and coverage that would be comparable to premium costs and coverage available to the borrower if the borrower had obtained the borrower's own insurance coverage, along with any reasonable related fees; and

(2) Premium installment payment options; provided that upfront, lump sum premium costs are prohibited;

provided further that a financial institution shall not obtain force-placed insurance coverage for the borrower during any time within the six-month period from the postmarked date of the written notice.

(c) A financial institution shall accept any reasonable form of written confirmation from a borrower of existing insurance coverage, including the existing insurance policy number and identity of and contact information for the insurance company or agent. Within fifteen days of the receipt of the confirmation of a borrower's existing insurance coverage, the financial institution, if applicable, shall:

(1) Terminate the force-placed insurance; and

(2) Refund the borrower all force-placed insurance premiums paid by the borrower during any period during which the borrower's insurance coverage and the force-placed insurance coverage were each in effect, and any related fees charged to the borrower's account with respect to the force-placed insurance during such period.

(d) For purposes of this section, "force-placed insurance" means insurance obtained by a financial institution when the borrower fails to maintain or renew insurance of the mortgaged property as required of the borrower under the terms of the mortgage."

SECTION 3. Chapter 454M, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"454M-   Force-placed insurance; requirements. (a) If a mortgage servicer does not have evidence of insurance coverage of a mortgaged property, the mortgage servicer shall send by first-class mail a written notice to the borrower containing:

(1) A reminder of the borrower's obligation to maintain hazard, homeowner's, or flood insurance on the mortgaged property;

(2) A statement that the mortgage servicer does not have evidence of insurance coverage of the mortgaged property;

(3) A statement that the borrower has six months from the postmarked date of the written notice to obtain the required insurance coverage;

(4) A clear and conspicuous statement of the procedures by which the borrower may demonstrate that the borrower already has insurance coverage; and

(5) A statement that the mortgage servicer may obtain force-placed insurance coverage at the borrower's expense if the borrower does not provide demonstration of the borrower's existing coverage within six months from the postmarked date of the written notice.

(b) If a mortgage servicer obtains force-placed insurance coverage for the borrower, the force-placed insurance coverage shall provide the following:

(1) Reasonable premium costs and coverage that are comparable to premium costs and coverage available to the borrower if the borrower had obtained its own insurance coverage, along with any reasonable related fees; and

(2) Premium installment payment options; provided that upfront, lump sum premium costs are prohibited;

provided further that a mortgage servicer shall not obtain force-placed insurance coverage for the borrower during any time within the six-month period from the postmarked date of the written notice.

(c) A mortgage servicer shall accept any reasonable form of written confirmation from a borrower of existing insurance coverage, including the existing insurance policy number and identity of and contact information for the insurance company or agent. Within fifteen days of the receipt of the confirmation of a borrower's existing insurance coverage, the mortgage servicer, if applicable, shall:

(1) Terminate the force-placed insurance; and

(2) Refund the borrower all force-placed insurance premiums paid by the borrower during any period during which the borrower's insurance coverage and the force-placed insurance coverage were each in effect, and any related fees charged to the borrower's account with respect to the force-placed insurance during such period.

(d) For purposes of this section, "force-placed insurance" means hazard, homeowner's, or flood insurance obtained by a mortgage servicer when the borrower fails to maintain or renew hazard, homeowner's, or flood insurance of the mortgaged property as required of the borrower under the terms of the mortgage."

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.

 

INTRODUCED BY:

_____________________________

 

 


 


 

Report Title:

Force-placed Insurance; Notice; Financial Institutions; Mortgage Servicers

 

Description:

Requires financial institutions and mortgage servicers to provide written notice to borrowers regarding the status of their insurance coverage; obtain force-placed insurance subject to certain conditions; and terminate and refund any moneys to the borrower upon receipt of the confirmation of a borrower's existing insurance coverage.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.