They inform the borrower that the borrower needs to 1) get with their insurance agent and buy a policy on the property with an effective date as of the date of closing, or 2) if the seller's have a policy, get a copy of the endorsement of that policy from the seller to the buyer with an effective date of closing.
Not really sure how much more explaining there needs to be. It happens thousands of times a day across the USA. Tell them an insurance agent does not tell them how to make a loan, they should not be trying to determine when an insurance agent can write an insurance policy.
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