Tague Alliance - Is Your Mortgage Company Forcing You To Have More Insurance

There are legitimate times when a mortgage company requires the borrower to have more insurance coverage when a home is truly under insured. However, on more than a rare occasion the mortgage company will attempt to require the borrower to carry property insurance coverage in the amount of the home loan. If the home is insured to replacement cost the mortgage company is not legally able to require the borrower to insure the home for more coverage. This pertains to California.

The member agencies of Tague Alliance run into this situation too often. We have successfully helped our clients by providing the mortgage company a copy of the replacement cost estimate and a the civil code below. You may find this helpful in your agency when working on behalf of your clients.

CALIFORNIA CIVIL CODE - 2955.5

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THE CODE

a) No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that property in an amount exceeding the replacement value of the improvements on the property.

b) Any person harmed by a violation of this section shall be entitled to obtain injunctive relief and my recover damages and reasonable attorney’s fees and costs.

c) A violation of this section does not affect the validity of the loan, note secured by a deed of trust, mortgage, or deed of trust.

d) For purposes of this section:

1) “Hazard insurance coverage” means insurance against losses caused by perils which are commonly covered in policies described as a “Homeowner’s Policy,” “General Property Form,” “Guaranteed Replacement Cost Insurance,” “Special Building Form,” “Standard Fire,” “Standard Fire with Extended Coverage,” “Standard Fire with Special Form Endorsement,” or comparable insurance coverage to protect the real property against loss or damage from fire and other perils covered within the scope of a standard extended coverage endorsement.

2) “Improvements” means buildings or structures attached to the real property.

CODE INTERPRETATION AND SUMMARY

California Civil Code - 2955.5 - specifically addresses the issue regarding the limit of insurance a lender is able to require their borrower to purchase covering a loan that is secured by real property. The Code places the Maximum Limit of Insurance that a lender can require at the Full Replacement Cost of the real property and it’s improvements. It does not state that a property must be insured or a lender require the real property be insured at full replacement cost value of the real property and it’s improvements.

We hope this information is helpful to your agency and clients.

Thank you.

Tony Veteto

Tague Alliance