Does a Bank Have To Accept a Binder at a Home Mortgage Closing?
Question: “My client is trying to close on the purchase of a house, and his bank won’t accept an insurance binder at the closing as proof of insurance. Doesn’t the bank have to accept it?”
Answer: Yes. Section 3404 of the New York Insurance Law, titled Fire insurance contracts; standard policy provisions; permissible variations, states in subsection (h):
(h) As used in this section, “binder” means a written document
(1) which includes the name and address of the insured and any additional named insureds, mortgagees, or lienholders; a description of the property insured; a description of the nature and amount of coverage which shall be deemed to include the terms of the standard fire insurance policy except as conspicuously noted on the binder; the identity of the insurer and of the authorized representative executing the binder; the effective date of coverage; the binder number or the policy number where applicable to a policy extension, and
(2) which temporarily obligates the insurer to provide that insurance coverage pending issuance of the insurance policy.
The cancellation of such a binder shall be governed at the minimum by the provisions of the standard fire insurance policy and the provisions of this chapter applicable thereto. No exempt organization, as defined in section five hundred ninety of the banking law, or licensed mortgage banker which originates mortgage loans shall, at the time of title closing for a loan secured by a one to four family residential real property, refuse to accept a binder, issued by an insurer, or a duly authorized representative of an insurer, licensed to do business in this state, as evidence that hazard insurance has been procured for the mortgaged premises. Nothing herein is intended to prohibit the mortgage banker or exempt organization from requiring the borrower to also furnish a receipt indicating that the annual or installment premium on such insurance policy has been paid.
Section 590 of the New York Banking Law, titled Definitions, states:
(e) “Exempt organization” shall mean any insurance company, banking organization, foreign banking corporation licensed by the superintendent or the comptroller of the currency to transact business in this state, national bank, federal savings bank, federal savings and loan association, federal credit union, or any bank, trust company, savings bank, savings and loan association, or credit union organized under the laws of any other state, or any instrumentality created by the United States or any state with the power to make mortgage loans. …
Therefore, a mortgage lender must accept a binder at the closing of a mortgage on a one to four-family dwelling.
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