Can a lender mandate insurance coverage?

I have PUD/townhouse with hazard insurance covered by HOA. It does include “walls in” coverage. Few weeks ago I received notice from the bank that I don’t have hazard insurance. After multiple e-mails and phone calls it turned out that they want me to purchase insuranse to cover betterments and improvements that will cover 20% of appraised value. I reviewed my closing documents and this requirement is explicitly mentioned only for condominiums. May I refuse to purchase additional insurance I do have my personal insurance that cover betterments but much less than 20%.

Asked on September 9, 2012 under Real Estate Law, California

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Whether or not your lender for the home that you have can mandate that you have insurance coverage for what it wants depends upon what your trust deed (mortgage) states as well as your loan agreement. As such, you need to read these documents in that the answer to your question will lie in these document.

Custom and practice in the lending industry for a home is that the lender requires that the borrower has in place at all times insurance for the secured item for the loan.

 


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