As part of the loan transaction, the borrower agrees in thecontracts to obtain insurance that meets the lender's requirements,to provide the lender with proof of coverage and to notify thelender of any policy cancellation. When the borrower works with itsinsurance agent, the insurance requirements should be communicatedand adhered to in the policy. The lender will not close a loanwithout the proper insurance in place.

For more than 30 years the real estate industry has relied onforms like Acord 28 to provide proof of the property insurancecoverage. The insurance certificate offers reliance to both thelender and the borrower that insurance is in place and will be inplace for a defined period of time. It is also important to notethat it is not the intention of the lender (at closing) or theservicer (at annual renewal) to expand the use of an insurancecertificate or Acord beyond its customary use or the actual policyterms. In fact, the lender and servicer want the certificate toaccurately reflect the policy terms for assurance that the borrowerhas met its contract obligations. The servicers address policygaps, cancellations and/or inadequate coverage with the borrowerwhen they become aware of the policy terms. In extreme cases, thiscan include force-placing insurance--very expensive for theborrower--and actually throwing the loan into default.

The lack of reliable insurance information is also harmful tothe borrower. Without insurance information transparency, theservicer cannot verify the insurance contractual terms to ensurethe borrower is in compliance. Without proof of valid andenforceable insurance coverage, the borrower is in contractualdefault which, again leads to increased borrower costs, potentiallitigation and potential loss of the property.