Servicing Guide

Published September 18, 2018

E-4.4-01: Continuing or Canceling Property Insurance Coverage (11/25/2015)

The servicer's action regarding the continuation or cancellation of property insurance coverage will depend upon

  • the type of mortgage loan that was liquidated, and

  • whether the property will be conveyed to the insurer or the guarantor.

Fannie Mae’s property recovery firms assume all responsibilities for filing any necessary property insurance claims for losses identified post-foreclosure for

  • conventional first lien mortgage loans,

  • conventional second lien mortgage loans for which Fannie Mae either had an ownership interest in the first lien mortgage loan or paid off the first lien mortgage loan in connection with the foreclosure of the second lien mortgage loan,

  • FHA or VA mortgage loans that cannot be conveyed to the insurer or guarantor, and

  • special servicing option RD guaranteed mortgage loans.

The property recovery firm may contact the servicer to obtain information about any applicable property insurance policy and carrier(s) and any recent property inspections completed by the servicer.

This topic contains the following:

Overview of Servicer Responsibilities Associated with the Decision to Continue or Cancel Property Insurance

Servicer responsibilities related to the decision to continue or cancel property insurance coverage are described in the following table.

The servicer must...

Provide all requested information or documentation to the property recovery firm within three business days.

Take appropriate actions related to the property insurance policy for an acquired property that was secured by a second lien mortgage loan if, in connection with the second lien mortgage loan foreclosure, Fannie Mae decides not to pay off an outstanding first lien mortgage loan in which it does not have an ownership interest (since Fannie Mae does not use a property recovery firm in this instance).

Have procedures in place to view HomeTracker regularly for updates to the Vacancy Report.

Note: Fannie Mae will provide the Vacancy Report through HomeTracker. The servicer will be able to identify when a property was added to the Vacancy Report in HomeTracker by referencing the “date loaded in HT” field on the report. Any inquiries regarding the Vacancy Report and cancellation of property insurance should be addressed to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts).

For Conventional First Lien Mortgage Loans

The following table describes the servicer's responsibilities related to the cancellation of property insurance coverage once the property appears on the Vacancy Report in HomeTracker.

Within 14 days after the property appears on the Vacancy Report in HomeTracker, the servicer must...

Ask the property insurance carrier to cancel the policy and, unless prohibited by the policy or applicable law, send it any unearned premium refund.

Request cancellation of Fannie Mae's mortgagee interest in the policy and removal of its name from the policy if the insurance carrier is not willing to cancel the policy because Fannie Mae is not the named insured.

If the servicer cancels the insurance policy prematurely and damages are later found, the servicer must make Fannie Mae whole for any losses or fees relating to the property damages.

See Applying Insurance Loss Proceeds in B-5-01, Insured Loss Events for additional information regarding the servicer’s responsibilities related to applying insurance loss proceeds.

For Conventional Second Lien Mortgage Loans

The actions the servicer of a conventional second lien mortgage loan must take are dependent upon whether or not Fannie Mae

  • has an ownership interest in both the first and second lien mortgage loans, and, if Fannie Mae does not;

  • chooses to pay off the first lien mortgage loan in connection with the foreclosure of the second lien mortgage loan.

A. Property recovery firm has claim-filing responsibility. Fannie Mae’s designated broker, agent, or property management company must complete the post-foreclosure inspection of an acquired property that secured a second lien mortgage loan and the property recovery firm is responsible for the filing of any applicable property insurance claim on behalf of Fannie Mae if:

  • Fannie Mae had an ownership interest in both the first and second lien mortgage loans, or

  • Fannie Mae, in connection with the second lien mortgage loan foreclosure, chose to pay off a first lien mortgage loan in which Fannie Mae did not have an ownership interest.

    If Fannie Mae... Then...

    had an ownership interest in both the first and second lien mortgage loans

    within 14 days after the property appears on the Vacancy Report in HomeTracker, the first lien mortgage loan servicer must ask the property insurance carrier to cancel the policy and, unless prohibited by the policy or applicable law, to send it any unearned premium refund.

    did not have an ownership interest in the first lien mortgage loan and chose to pay it off in connection with the second lien mortgage loan foreclosure

    the second lien mortgage loan servicer’s responsibilities related to the property insurance policy will begin when title to the property is acquired at the foreclosure sale.

B. First and second lien mortgage loan servicers coordinate claim-filing responsibility. The second lien mortgage loan servicer must complete the post-foreclosure property inspection and assist the first lien mortgage loan servicer should it need to file a claim when Fannie Mae (in connection with the second lien mortgage loan foreclosure) chose not to pay off an outstanding first lien mortgage loan in which it did not have an ownership interest. The second lien mortgage loan servicer must also request the property insurance carrier cancel Fannie Mae’s second lien mortgagee interest in the policy and show instead that Fannie Mae is the named insured.

The property recovery firm may contact the second lien mortgage loan servicer if the property appears on the list of acquired properties that it receives from Fannie Mae. In such cases, the second lien mortgage loan servicer must advise the property recovery firm that the first lien mortgage loan servicer is responsible for the property insurance policy and filing any required claim.

For FHA Mortgage Loans

The following table describes servicer requirements for FHA mortgage loans that will be conveyed to HUD.

The servicer must...

Obtain an endorsement to the property insurance policy to reflect Fannie Mae's interests immediately following the foreclosure sale.

Cancel the insurance coverage on the date the deed to HUD is filed for record and include the amount of the refund, or an estimated refund amount if the refund has not been received, as a deduction on the FHA MI claim.

If the property cannot be conveyed to HUD, the servicer must instead adhere to the policy described for conventional mortgage loans in For Conventional First Lien Mortgage Loans in E-4.4-01, Continuing or Canceling Property Insurance Coverage.

When the servicer receives the refund of the unearned property insurance premium from the insurer, it must immediately remit the funds to Fannie Mae as a “special remittance.” However, if Fannie Mae has not reimbursed the servicer for all of its outstanding foreclosure expenses, the servicer may keep the property insurance premium refund and show it as a credit on the request for expense reimbursement that it submits to request reimbursement of its outstanding expenses for the mortgage loan.

Note: This does not pertain to property insurance proceeds, but only premium refunds.

For VA Mortgage Loans

For VA mortgage loans that will be conveyed to VA, the servicer must endorse the applicable property insurance policy over to VA immediately following the foreclosure sale. If the property cannot be conveyed to VA, the servicer must adhere to the policy for conventional mortgage loans in For Conventional First Lien Mortgage Loans in E-4.4-01, Continuing or Canceling Property Insurance Coverage.

For RD Mortgage Loans

For modified special servicing option or regular servicing option RD mortgage loans, the servicer's decision about canceling the property insurance policy or Fannie Mae's mortgagee interest in it must be made in accordance with RD requirements.

For special servicing option RD mortgage loans, the servicer must adhere to the policy for conventional mortgage loans in For Conventional First Lien Mortgage Loans in E-4.4-01, Continuing or Canceling Property Insurance Coverage.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC–2015–14 November 25, 2015