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Not according to the Texas Insurance Code Chapter 549.
INSURANCE CODE
TITLE 5. PROTECTION OF CONSUMER INTERESTS
SUBTITLE C. DECEPTIVE, UNFAIR, AND PROHIBITED PRACTICES
CHAPTER 549. PROHIBITED PRACTICES RELATING TO PROPERTY INSURANCE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 549.0551. REQUIRING CERTAIN AMOUNTS OF COVERAGE. (a) A lender may not require as a condition of financing a residential mortgage or providing other financing arrangements for residential property, including a mobile or manufactured home, that a borrower 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.
(b) For purposes of this section, a lender may not include the fair market value of the land on which a dwelling is located in the replacement value of the dwelling and its contents.
Added by Acts 2005, 79th Leg., Ch. 69 (H.B. 2761), Sec. 1(a), eff. May 17, 2005; Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.017(a), eff. September 1, 2005.
Yes they can, say you buy a $50K home, the insurance company will tell you that rebuilding that home will cost $100K so the home has to be insured for $100K for that reason.
Not according to Freddie Mac. It's up to the Insurer to determine replacement cost
First Mortgages
For a first mortgage secured by a property on which an individually held insurance policy is maintained, Fannie Mae requires coverage equal to the lesser of the following:
· 100% of the insurable value of the improvements, as established by the property insurer; or the unpaid principal balance of the mortgage, as long as it at least equals the minimum amount—80% of the insurable value of the improvements—required to compensate for damage or loss on a replacement cost basis. If it does not, then coverage that does provide the minimum required amount must be obtained. B7-3-03, Determining the Amount of Required Property Insurance Coverage provides a formula for determining the amount of property insurance coverage generally required for a first mortgage
Not according to Freddie Mac. It's up to the Insurer to determine replacement cost
They did, the insurance company says the replacement cost is $100K on a $56K home, so insurance has to be paid to cover $100k worth of insurance, so to answer the OP, yes the insurance company can demand more homeowner insurance to cover the loss.
They did, the insurance company says the replacement cost is $100K on a $56K home, so insurance has to be paid to cover $100k worth of insurance, so to answer the OP, yes the insurance company can demand more homeowner insurance to cover the loss.
The OP wasn't asking about the insurance company's requirements; his question was about the LENDER trying to make a requirement regarding how much his home was insured for.
And the insurance company doesn't "demand" anything. It simply calculates the rebuild value of your home based on the workmanship, finishes and the current cost of labour and materials (and since all insurance companies use similar algorithms the rebuild amount will be in the same ballpark from company to company). They don't care what you paid for the home or the land or anything else; they only care about rebuild value since that is what they will end up paying out if you file a claim. Based on the rebuild value and risk factors they then calculate what the premium will be and you can then decide to purchase the policy or not.
The only demand the insurance company makes is that you pay your premium if you want coverage.
The OP wasn't asking about the insurance company's requirements; his question was about the LENDER trying to make a requirement regarding how much his home was insured for.
And the insurance company doesn't "demand" anything. It simply calculates the rebuild value of your home based on the workmanship, finishes and the current cost of labour and materials (and since all insurance companies use similar algorithms the rebuild amount will be in the same ballpark from company to company). They don't care what you paid for the home or the land or anything else; they only care about rebuild value since that is what they will end up paying out if you file a claim. Based on the rebuild value and risk factors they then calculate what the premium will be and you can then decide to purchase the policy or not.
The only demand the insurance company makes is that you pay your premium if you want coverage.
The insurance company does demand, unless you want to pay in full in cash and self insure in which case you don't need a bank. and the lender does demand because they won't approve the loan without insurance.
The insurance company does demand, unless you want to pay in full in cash and self insure in which case you don't need a bank. and the lender does demand because they won't approve the loan without insurance.
What do you think the insurance company is demanding, exactly? As I said before, the only thing the insurance company can demand is that you pay a premium if you opt for a policy with them. If you pay cash or self insure or go with another company, it doesn't really affect them.
And the whole point of the OP's question was the lender requiring insurance in excess of the rebuild value (which they often do even if it is against regulations and can get them in trouble) due to the mortgage amount. The point of the post is that the lender cannot, by law, make carrying insurance in excess of the rebuild value a stipulation of the loan approval. So yes, the lender can make that demand but it is illegal to do so it won't stand up if challenged.
They did, the insurance company says the replacement cost is $100K on a $56K home, so insurance has to be paid to cover $100k worth of insurance, so to answer the OP, yes the insurance company can demand more homeowner insurance to cover the loss.
I am not talking about the insurance companies' requirements. I am referring to the bank/mortgage company that are stipulating insurance requirements as part of the underwriting that exceed replacement value.
I know this is a very old post---I am an insurance broker in CA and licensed in TX. I represent many companies. I was actually doing a Google search to send something to the Dept of Insurance on this very subject. I will tell you what I tell the lenders when they pull this crap which is an illegal practice in most states.
Insurance carriers don't give a flying pink elephant's butt about what your loan amount is, what you paid, the full price of your home, the half price of your home, the value, that your mother's cousin's sister's daughter quit claimed you the house so you paid nothing so your insurance should be free----the ONLY thing we are insuring is the structure. NOT THE LAND! So if it's a shack on a million dollar property and your loan is 950k the insurance is going to cover what it costs to rebuild the SHACK---maybe 50k if it has an outhouse.
Think about it---what do you think happens if the place burns to the ground? Do you think the insurance company just walks over and hands you a check for 950k? NO--the money is put into an escrow account and payments made to the contractor as you rebuild. If it only costs 50k to rebuild you will never see the rest of the $. Different carriers do this slightly differently but what it does not do is pay off the mortgage. If you need mortgage insurance because you may default on the loan then you get mortgage insurance or PMI. It's on FHA loans. What you DON'T do is insure the structure to match the loan amount bc we aren't gonna pay on that. And you can't over-insure a property so much that the UW of the insurance company goes--wait----what gives---we have a 2BR 1BA at 500K Dwelling coverage? Is it made of gold?
We also don't come up with the reconstruction costs off the tops of our heads. We have to enter in the features of the property into an approved reconstruction cost estimator like Marshall & Swift or 360 Value and IT calculates an amount for us that is kept on file and the features sent to the insured so they can verify what was used to get their reconstruction cost.
Okay---off to my search for the TX bill that says this is an illegal practice so I can show it to compliance at the DOI in CA. Good night.
Did you happen to find the TX bill that says that?
Did you happen to find the TX bill that says that?
See post number 22.
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