We have been experiencing a situation in which customers will cancel their H/O insurance after closing the loan. The bank will not be aware that the customer has done this until it is time to pay the (cancelled) insurance premium out of escrow. When we pay the cancelled policy, the insurance company will return the payment to the bank. Should the bank maintain the escrowed insurance and get a force placed policy for the customer? Or, Can the bank just stop escrowing for insurance and refund the customer the overage at the next escrow statement review? As a side note...the bank maintains a blanket policy for the bank's protection in the event customer let's their insurance lapse and a loss to the collateral eventually occurs.

Why is the bank not being notified that the insurance has been cancelled? Are you not shown as a lien holder on the policies. All insurance companies notify the lien holders when insurance is cancelled.

Whether you force place insurance is a risk management decision. You might want to check your blanket insurance carefully and make sure it covers the bank when you are fully aware that the property is not insured and it is not just some sort of gap insurance coverage.

I have the same question as scottb. We have customers who cannot obtain/have canceled their homeowners insurance. We also have a blanket insurance policy which covers us fully. What is the best option to take? Stop escrowing for insurance and refund the overage to the customer?