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SD 1502

An Act relative to the fiduciary responsibility of lenders for non-payment of insurance premiums from escrowed accounts

194th Legislature (2025-2026) Introduced by Mark Montigny

Banks bear liability for losses when failing to pay escrowed property insurance, with a cap equal to lapsed policy limits and must cover overdue premiums and related costs for up t

House concurred
0
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Bill Summary · SD 1502

Summary: SD 1502 — An Act relative to the fiduciary responsibility of lenders for non-payment of insurance premiums from escrowed accounts

Overview

This bill would hold lenders (banks) financially responsible when they fail to pay property insurance premiums from escrowed accounts, causing a loss to the property owner. It adds a new fiduciary duty for lenders and establishes specific remedies and limits on liability.

Purpose and intent

  • To protect homeowners and property owners from losses arising from a lender’s failure to pay insurance premiums from escrowed funds.
  • To ensure lenders are accountable for negligent handling of escrowed insurance payments and to mitigate resulting financial harm to borrowers.

Key provisions (as added to Chapter 167E, §4)

  • New subsection (d) inserted after existing provisions:
    • Trigger: If a bank requires escrow of the borrower’s property insurance and, due to neglect, fails to pay the due insurance premium from escrow funds when there are sufficient funds on deposit, and the property owner suffers a loss as a result, the bank is liable for the loss.
    • Liability cap: The bank’s liability for any loss shall not exceed the coverage limits of any insurance policy that has lapsed.
    • Bank remedy obligation: The bank must pay the overdue insurance premium and any increased cost necessary to secure a new insurance policy for a period of three (3) years.
    • Late payment: If the bank is late in paying the insurance premium, the bank must pay the late fee charged by the insurance company.

Who is affected

  • Banks and lenders that require escrowed insurance for real estate loans.
  • Borrowers/property owners who rely on escrowed premiums to keep insurance current.
  • Insurance companies that assess late fees and premium costs.
  • The measure operates within the framework of existing escrow and mortgage practices in Massachusetts.

Procedural and timeline details

  • Introduced: February 27, 2025.
  • Senate docket: Senate, No. 1502 (filed 1/16/2025), referred to the Committee on Financial Services.
  • Status: House concurred as of February 27, 2025.
  • Legislative context: Related to previously filed similar matter (Senate No. 685 of 2023-2024).

Potential implications

  • Increased lender accountability for escrow management of insurance.
  • Financial exposure for lenders in cases of escrow mismanagement, potentially including liability for losses tied to lapse-covered policies.
  • Banks may incur higher costs in maintaining escrowed insurance and potential premium increases if required to cover new or reinstated policies for up to three years.
  • Borrowers benefit from stronger protections against gaps in insurance coverage due to lender negligence.

Note: The bill mirrors a broader concern with fiduciary duties of lenders regarding escrowed funds and insurance payments, and would operate alongside Massachusetts General Laws Chapter 167E.

Compiled from official sources — confirm details with the bill’s official record.

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