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Beware ForcePlacing Hazard Insurance

We have an affiliate that is an insurance agency. Although customers are given the choice to bring their own insurance policy, if they don't, we forceplace it with our affiliate. Even though we are not actually referring the customer, I am unsure if we should give the customer the Affiliated Business Arrangement Disclosure. My CO thinks that we don't have to, since there is no referral, but I have read a lot of conflicting articles on the matter. What is your opinion?

You don't specify the type of insurance but use of the term force place generally brings up flood insurance. Flood insurance is not one of the services that is identified as one you can select even if affiliated. Those three services identified are credit report, attorney, and appraiser. RESPA was written before the mandatory flood insurance rules and, if enacted today, probably would include flood insurance. However, that hasn't happened yet. In any event, other hazard insurance has never been part of the exempt list. Force placing hazard insurance using an affiliate's company would be a real problem under RESPA.

Your selection of the insurance company is clearly a referral and may also be prohibited by RESPA because insurance, even flood insurance, is not on the list of three exemptions.

As an additional concern, why are you closing loans when the customer has not produced proof of insurance? The question of insurance is going to be a problem for the life of this loan.

First published on 8/11/03

First published on 08/11/2003

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