Flood Insurance Premium.......Pre-Paid Finance Charge by TIL standards?!?!?!

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Posted by Angela Mulkey on May 17, 2001 at 10:35:15:

I recently received a notification that an attorney represented a borrower we did a loan for a year ago. The attorney claims that the loan was a HOEPA violation due to the fact that the Flood Insurance Premium was paid from the loan proceeds. The Flood Insurance is a Federal requirement when a lender takes a security interest in the borrower's subject residence. The borrower is elderly and did not want to be bothered with the administrative work. The loan processor was instructed verbally by the borrower to contact her present Hazard Insurance carrier and obtain the required Flood Insurance. According to my conversation with the agent, the Flood Insurance would have cost the borrower the same amout regardless of whom it was obtained through due to the fact that the Federal Government regulates the annual premiums.

The attorney also identifies within the complaint that the borrower was directed to our company by a contractor who solicited her over the phone and then later came to her home and determined that repairs needed to be made. The contractor had no affiliation with our company. We believe that our yellow page ad was the source of the mortgage origination. The attorney goes on to state that the contractor took the borrower to closing and then back again after the right to cancel period to pick up the disbursement check. The borrower and her spouse signed the check over to the contractor before any work was started let alone completed. The contractor was not heard from again. We were never notified; however, we had the check cut to the borrower and her spouse. We did not make the check payable in any way to the contractor nor did we require any repairs to be made to the property.

In any event, the attorney seeks attorney fees, the borrowers last 12 payments returned and the forgiveness of the original mortgage. The loan is a small $10,000 and with the additional monies being sought will cost us approximately $15,000. It will most likely cost us a great deal more to defend such a suit in court; however, I believe we have done nothing wrong!

I have never heard of Flood Insurance being calculated as part of the APR. That, of course, is the attorney's basis of the suit. The attorney states that since we did not disclose this Flood Insurance requirement and since we requested the Flood Insurance from the borrower's present carrier and did not give her a "choice" of carriers, the Flood Insurance premium becomes a TIL charge. The borrower asked us to obtain the Flood Insurance from her current Hazard Insurance carrier which she had used for years. She did not have the money to pay the first years premium from her proceeds; therefore, we told her that she could have the first years premium paid from the proceeds of the loan being obtained and then she would pay all future premiums as due.

What do you think? Have you ever heard of Flood Insurance being required to be disclosed as a prepaid finance charge?

I suppose it should go without saying, the attorney has only brought action against our company and the subsequent investor that purchased the servicing rights from us. The contractor has not been named in the suit. He has taken his money and run............

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: I recently received a notification that an attorney represented a borrower we did a loan for a year ago. The attorney claims that the loan was a HOEPA violation due to the fact that the Flood Insurance Premium was paid from the loan proceeds. The Flood Insurance is a Federal requirement when a lender takes a security interest in the borrower's subject residence. The borrower is elderly and did not want to be bothered with the administrative work. The loan processor was instructed verbally by the borrower to contact her present Hazard Insurance carrier and obtain the required Flood Insurance. According to my conversation with the agent, the Flood Insurance would have cost the borrower the same amout regardless of whom it was obtained through due to the fact that the Federal Government regulates the annual premiums. : The attorney also identifies within the complaint that the borrower was directed to our company by a contractor who solicited her over the phone and then later came to her home and determined that repairs needed to be made. The contractor had no affiliation with our company. We believe that our yellow page ad was the source of the mortgage origination. The attorney goes on to state that the contractor took the borrower to closing and then back again after the right to cancel period to pick up the disbursement check. The borrower and her spouse signed the check over to the contractor before any work was started let alone completed. The contractor was not heard from again. We were never notified; however, we had the check cut to the borrower and her spouse. We did not make the check payable in any way to the contractor nor did we require any repairs to be made to the property. : In any event, the attorney seeks attorney fees, the borrowers last 12 payments returned and the forgiveness of the original mortgage. The loan is a small $10,000 and with the additional monies being sought will cost us approximately $15,000. It will most likely cost us a great deal more to defend such a suit in court; however, I believe we have done nothing wrong! : I have never heard of Flood Insurance being calculated as part of the APR. That, of course, is the attorney's basis of the suit. The attorney states that since we did not disclose this Flood Insurance requirement and since we requested the Flood Insurance from the borrower's present carrier and did not give her a "choice" of carriers, the Flood Insurance premium becomes a TIL charge. The borrower asked us to obtain the Flood Insurance from her current Hazard Insurance carrier which she had used for years. She did not have the money to pay the first years premium from her proceeds; therefore, we told her that she could have the first years premium paid from the proceeds of the loan being obtained and then she would pay all future premiums as due. : What do you think? Have you ever heard of Flood Insurance being required to be disclosed as a prepaid finance charge? : I suppose it should go without saying, the attorney has only brought action against our company and the subsequent investor that purchased the servicing rights from us. The contractor has not been named in the suit. He has taken his money and run............

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