The hazard insurance is insurance coverage on the property that will pay out to the lender in the event of a total loss. Therefore, the lender needs to be listed as the mortgagee on the policy (the mortgagee is the party to whom the insurance will pay out in the event of a loss) and the coverage needs to be enough to either satisfy the loan or rebuild the home.

When you order the hazard insurance, make sure to include the lender’s mortgagee clause and the loan number (if you have one). The mortgagee clause can sometimes be obtained from the loan submission documents, the lender’s website or the pre-approval. If you don’t find it there, contact your AE. It is imperative that the mortgagee clause be exactly right, to the letter, on the evidence of insurance. Also keep in mind that some lenders have different mortgagee clauses for the insurance, the title commitment and the closing protection letter (CPL). Make sure you’re using the correct clause.

You will also want to make sure that you order the correct amount of dwelling coverage. The amount of dwelling coverage required will be the lesser of the loan amount or the Estimate of Cost- New on the appraisal (page 3 under the Cost Approach section). If you have a copy of your borrower’s current insurance declarations page (dec page), check for the amount of current coverage listed. Also look for additional coverage that may be listed as additional replacement coverage or guaranteed coverage. Extended coverage is usually for an additional 20-50% above the listed dwelling coverage. Guaranteed replacement coverage means that the home will be replaced, regardless of cost. So, if the coverage is listed as $140,000 and they also have replacement coverage of 125%, the total dwelling coverage is actually $175,000. You may have to call the agent to get the percentage of the additional coverage but you do want to do this. This additional coverage can make the difference between having to increase your borrower’s coverage (and premium) or not.

When you receive the evidence of insurance back from the insurance company, check the following:

*Borrowers’ names and the correct property address; note that the borrower’s address may different from the address of the subject property, particularly in the case of investment properties. Make sure that the subject property is the insured property on the policy.

*Verify that the mortgagee clause for your lender is correct and that the loan number is listed, if you have one; if you’re doing a combination first and second mortgage, both will need to be shown on the insurance with the mortgagee listed for each (even if it’s the same lender for both loans).

*Check the amount of coverage to make sure you have enough; the policy may also include extended or guaranteed replacement coverage (see above).

*Make sure the evidence of insurance includes the annual premium amount and if the premium has been paid or not.

*Check the effective dates; on a purchase, the effective date should be the date of closing. For refinances, the effective dates will already be in place. You must have at least three months after the loan funds before the next annual premium is due or the next premium will need to be paid at closing.

*Make sure the insurance agent’s information is shown on the evidence.

Once you receive the evidence of insurance and verify the information, you will need to provide copies to both the lender and the title company / closing agent. Don’t forget to keep one copy in your file as well.

Shawn Arntson - Superior Processing