Depository institution to obtain required property insurance when borrower does not
- • notice required
(1) In a contract or loan agreement, or in a separate document accompanying the contract or loan agreement and signed by the mortgagor, borrower or purchaser, that provides for a loan or other financing secured by the mortgagors, borrowers or purchasers real or personal property and that authorizes the secured party to place insurance on the property when the mortgagor, borrower or purchaser fails to maintain the insurance as required by the contract or loan agreement or the separate document, a warning in substantially the following form shall be set forth in 10-point type:
Unless you provide us with evidence of the insurance coverage as required by our contract or loan agreement, we may purchase insurance at your expense to protect our interest. This insurance may, but need not, also protect your interest. If the collateral becomes damaged, the coverage we purchase may not pay any claim you make or any claim made against you. You may later cancel this coverage by providing evidence that you have obtained property coverage elsewhere.
You are responsible for the cost of any insurance purchased by us. The cost of this insurance may be added to your contract or loan balance. If the cost is added to your contract or loan balance, the interest rate on the underlying contract or loan will apply to this added amount. The effective date of coverage may be the date your prior coverage lapsed or the date you failed to provide proof of coverage.
The coverage we purchase may be considerably more expensive than insurance you can obtain on your own and may not satisfy any need for property damage coverage or any mandatory liability insurance requirements imposed by applicable law.
(2) Substantial compliance by a secured party with subsection (1) of this section constitutes a complete defense to any claim arising under the laws of this state challenging the secured partys placement of insurance on the real or personal property in which the secured party has a security interest, for the protection of the secured partys interest in the property.
(3) Nothing contained in this section shall be construed to require any secured party to place or maintain insurance on real or personal property in which the secured party has a security interest, and the secured party shall not be liable to the mortgagor, borrower or purchaser or to any other party as a result of the failure of the secured party to place or maintain such insurance.
(4) The failure of a secured party prior to January 1, 1996, to include in a contract or loan agreement, or in a separate document accompanying the contract or loan agreement, the notice set forth in subsection (1) of this section shall not be admissible in any court or arbitration proceeding or otherwise used to prove that a secured partys actions with respect to the placement or maintenance of insurance on real or personal property in which the secured party has a security interest are or were unlawful or otherwise improper. A secured party shall not be liable to the mortgagor, borrower or purchaser or to any other party for placing such insurance in accordance with the terms of an otherwise legal contract or loan agreement with the mortgagor, borrower or purchaser entered into prior to January 1, 1996. [1977 c.742 §5; 1995 c.313 §3; 2003 c.363 §13]
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