We have a customer who has escrow and was maintaining their hazard insurance. There is no cancellation notice in the file so I am not sure if we ever received a notice of cancellation for the hazard insurance. We sent the escrow check to the customer and noticed after a couple of months the check was never cashed. We contacted the customer about the check and he said that he didn't have any insurance anymore and has the check. What are we supposed to do? Of course this all happened a year ago and the lender force placed the policy now he is asking me what he should do with the escrow check.

I have read the rules about paying the insurance premiums from the escrow and we know how to do it right, but I don't think we received notice from the company. Can we pay the force placed policy from the escrow?
Thank you!

I'm confused. You sent the escrow check to the CUSTOMER? Why? If you are escrowing for insurance, why aren't you paying for the insurance?

When you escrow, you take on a fiduciary responsibility to collect the payments from the borrower and to make the payments to the insurance company. If you didn't receive something from the insurance company (invoice, notice of cancellation), then it's your responsibility to follow up with the insurance company. You don't send a check to the customer and tell them to pay it.

I can't explain why people did what they did at that point in time.
We sent the check to the borrower, the check is payable to the borrower and the insurance company.

Then I don't know how to advise you per the regulation.

You could cancel the check issued to the customer (and inform them). You also need to review the loan contract and see what rights it gives you. I'm sure it requires insurance to be in place and discusses this. You say the borrower indicated they don't have insurance anymore. Why? If they cancelled the insurance, they violated the loan agreement. This would also explain why you didn't get notice from the company.

I'd also contact the insurance company and have a firm talk with the agent. If the bank was listed as loss payee, the bank should have been notified of any cancellation.

Last, you say you have force placed insurance. This is difficult to advise as you should never have to force place insurance when you also escrow. I would think you could reimburse the bank from the escrow account.

This all needs to be brought to those that handle the escrow accounts, the loan officer and loan administration that monitor insurance. You've got a mess (as you know) that could have all been avoided had normal banking practices been applied.