Borrower Notice

**NOTICE TO COMMERCIAL AND MULTIFAMILY BORROWERS***** Commercial and multifamily property finance requires that borrowers maintain insurance coverage on the collateral property as specified in the loan documents executed at loan closing. Evidence of this insurance coverage is required in order to close the loan and at each renewal period during the life of the loan or when insurance coverage is modified or insurance carriers are changed. The evidence of insurance generally should: (i) confirm the existence of the policy; (ii) address the mortgagee and loss payee provisions (providing benefit to the lender/servicer); and, (iii) specify policy coverage information, including but not limited to, the type of coverage, amount, policy limits and deductibles all as set out in your loan documents.

Insurance companies often do not deliver actual insurance policies timely (at or shortly after the inception, renewal or change date). Since at least 1984, one of the primary ways that the insurance and commercial and multifamily finance industries have bridged the gap between the insurers' inability to deliver policies and renewals timely and your contractual obligation to your lender/servicer to provide evidence that the required insurance is in place has been through completion of an ACORD1 uniform "evidence of commercial property insurance" form2 often referred to as an 'insurance certificate'. This ACORD form, among other things, summarizes the insurance in place on the property. For more than 20 years, the ACORD form was acceptable to lenders and servicers in lieu of receipt of the actual policy or renewal.

While the ACORD evidence of insurance form has undergone changes over time, (including changes recommended by the commercial mortgage financial industry in 2003 to expedite both the provision of insurance information and review of that information), in July, 2006, the insurance community, without input from the commercial mortgage finance industry, approved modifications to the ACORD "evidence of commercial property insurance" form to (among other things) eliminate its evidentiary nature. Due to technicalities, the modified form has only recently begun to be used by insurance agents and carriers.

A group of lender/servicers, represented by the Mortgage Bankers Association3 and working through ACORD, has been in discussion with representatives of the insurance company and insurance agent communities since spring 2007 to resolve this issue without success. The failure of the insurance community to provide you with acceptable evidence of the insurance in place on your loan may affect your ability to comply with the terms of your loan.

Key points to consider:

  • Many insurance companies do not issue and deliver policies and/or renewal documents at or shortly after inception of the policy, renewal date or modification
  • Traditionally commercial and multifamily loan servicers have worked with insurance agents annually to obtain acceptable evidence that the required insurance continues in place
  • You are required to provide acceptable evidence of insurance (as set out in your loan documents) that your loan servicer may be unable to obtain from your insurance carrier/agent. As a result, your assistance may be required to obtain acceptable evidence from your insurance agent or carrier
  • Lenders/investors may vary in approach to what is acceptable evidence of insurance in lieu of receiving the 2003 version of the ACORD form
  • Your failure to obtain appropriate evidence of insurance from your insurance agent/carrier may result in a default under your loan documents

Steps to take:

  • Determine whether your insurance company or insurance agent will provide the 2003 version of the ACORD 28 "evidence of commercial property insurance"
  • If your insurer/agent is unable to provide this document, ask your lender/servicer for a list of acceptable alternatives

The commercial and multifamily finance industry regrets this situation and the inability to come to agreement with representatives of the insurance company and insurance agent communities. We are continuing our attempts to determine an acceptable solution, however, your cooperation will be appreciated until resolution is reached.

Kathy Marquardt kmarquardt@mba.org for additional information.

Footnotes:
1ACORD is an organization that supports the development of standards in the insurance industry.
2Some insurance companies or insurance agents may use a proprietary form rather than the ACORD 'evidence of commercial property insurance" form. A proprietary form or other documentation is acceptable provided that it contains the information required to be provided to the lender/servicer.
3The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry.