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I let my homeowner's insurance lapse. The bank secured a new policy and then notified me that I'm responsible for paying the premium. The new insurance is a lot more expensive. Can the bank do this?

Depending on the terms of your loan contract and whether you have an escrow account, the bank may be able to force-place insurance—but only after providing two notices to you.

Many loan contracts contain a provision requiring that you properly insure the home and that if the loan is not properly insured, the bank can force-place insurance on your behalf.

If you have an escrow account and are not more than 30 days delinquent on your loan, then your bank generally must advance the amount of the hazard insurance premium to ensure timely payment of the premium, absent certain exemptions. Your bank may then seek reimbursement from you for the premium. One exception to the requirement to advance funds is that if your policy has lapsed for reasons other than nonpayment or the property is vacant. There are other exceptions.

If you do not have an escrow account, your bank must provide two notices before force-placing insurance. Your bank must ask you to provide proof of insurance (such as a copy of the declaration page from the policy) and advise that if you do not have insurance, the bank can purchase the insurance on your behalf. The premium on this insurance will usually be much more expensive than the cost of a policy you can purchase yourself. The bank can charge you for the cost of the insurance premiums.

Refer to 12 CFR 1024 "Real Estate Settlement Procedures Act (Regulation X)."

Last Reviewed: October 2020

Please note: The terms "bank" and "banks" used in these answers generally refer to national banks, federal savings associations, and federal branches or agencies of foreign banking organizations that are regulated by the Office of the Comptroller of the Currency (OCC). Find out if the OCC regulates your bank. Information provided on HelpWithMyBank.gov should not be construed as legal advice or a legal opinion of the OCC.

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