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Because the insurance agent did not issue the policy, the insurance company will deny the claim because there is no coverage in force. The mortgage company and its client then turn to the agent. Because they have the insurance binder in hand, the insurance agent will be forced to file an errors-and-omissions claim to cover the loss.
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Another problem can occur when the policy is issued but the broker does not notify the insurance agent of a canceled closing. For instance, a broker may receive the insurance binder and notification of an issued policy. But when the loan falls through and the client does not close, the broker does not inform the insurance agent. The insurance agent does not learn that the loan didn't close until following up on payment.
Sometimes the insurance company can cancel the policy without a problem. But some insurance companies charge a minimum fee if a policy is canceled after being issued. The question then arises of who pays this fee. This can create a problem for the insurance company because it often needs to eat the cost of the cancellation.
Communication is key
To avoid such problems, the answer lies in communication. When requesting an insurance binder, brokers should let the insurance agent know how definite the closing will be and ask for a confirmed quote. This will lock the insurance rate in for 30 days. The thing to remember, though, is that this is just a quote and that there is no coverage in place. You must then tell them when the closing will be so that they can issue the policy.
It also helps to give the insurance agent your loan processor's and title company's name and phone number. This gives the agent other sources to contact for follow-up on the closing.
In addition, explain the basics of conditions to close to the insurance agent. Many insurance agents don't understand why mortgage brokers need insurance binders days or weeks before closing. If you tell them that the underwriter requires the binder as a condition to close the loan, it may help them better understand your processes and enhance your relationship.
So it goes back to communication -- communicating the need for the insurance binder, communicating the closing date and communicating when the client actually closes.
If mortgage brokers and insurance agents work together instead of as adversaries, everyone will win. You will close the loan, your client will get the house, and the insurance agent will get the borrower and property covered.
Marc A. Cisneros Jr. is
CEO and co-owner of CS Innovative Insurance Solutions, an independent agency in San Antonio. Cisneros has been in the insurance business since 1989. A member of the National Association of Mortgage Brokers and the Texas Association of Mortgage Brokers, he specializes in insurance programs catering to mortgage brokers, including errors-and-omissions coverage, commercial insurance, surety bonds, medical insurance, and home, rental and commercial insurance for clients. Visit www.csiis.biz or e-mail email@example.com.
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