I'm at a small servicer, and we have a situation where a borrower's hazard insurance was cancelled for non-payment. The borrower has an escrow account, and we're wondering if we can pay the force placed insurance from his escrow funds, or if we have to refund the escrow funds at the time of the borrower's annual escrow statement and add the cost of the force placed to his principal.

I looked at 1024.17(k)(5)(iii), but it doesn't say whether escrow funds can be used to purchase force placed insurance, just that small servicers can purchase it if it's cheaper.

I am confused. If the borrower already has an escrow account - how was the insurance not paid in time?

Sorry. The customer cancelled the insurance and we received notice. Customer has not responded to phone calls or to certified letters. We need to force place. There is enough money in the escrow account.

Yes - you can pay it out of the escrow account and continue to escrow for it.

Thank you.

Beware, your borrower may cancel the next policy as well, and request the refunded premium be sent to them.

I'd increase efforts to reach the borrower and consider a short-year statement if you're now anticipating a shortage in the escrow funds.

Force placed policies usually cannot be canceled by other then the lender however.