Insurance companies have become more sophisticated in the face of the housing crisis, hiring teams specifically to investigate and adjust hazard claims filed by the mortgage servicers. This has resulted in an increase in hazard denials.
Servicers and investors need to develop processes to protect their ability to collect insurance damages for hazard claims.
First, create a process to track the status of the retail insurance coverage on a delinquent property. Providing updates will be helpful in creating an accurate timeline of when the damages occurred. It also is smart to invest in force-placed coverage to protect collateral interests when gaps in coverage occur.
Second, perform regular inspections and maintenance to document the timeframe of the damages. In doing so, not only are the servicers taking preventive measures, they are helping to determine when and how the damages occurred.
Third, notify the insurance carriers of any changes in the property status. Failing to do so could result in coverage denials. If denied, servicers need to be prepared to challenge the insurance company's findings. Proper documentation will be needed when doing so.
Fourth, be prepared in natural disasters. Servicers need to act quickly to recover damages and protect their collateral interests. This is true for both delinquent and current loans.
Taking these steps will help servicers and investors protect their collateral interests and the value of properties in their portfolios.