Q. We recently have had mortgage companies requiring the full loan amount for insurance coverage that exceeds the replacement cost of the dwelling. Aren’t they prohibited from doing that?
A. Yes, the Texas Insurance Code Chapter 549, Sec. 549.0551 states”
“(a) A lender may not require as a condition of financing a residential mortgage or providing other financing arrangements for residential property, including a mobile or manufactured home, that a borrower purchase homeowners insurance coverage, mobile or manufactured home insurance coverage, or other residential property insurance coverage in an amount that exceeds the replacement value of the dwelling and its contents, regardless of the amount of the mortgage or other financing arrangement entered into by the borrower. (b) For purposes of this section, a lender may not include the fair market value of the land on which a dwelling is located in the replacement value of the dwelling and its contents.”
Also the Texas Finance Code, Chapter 180, Sec. 180.153 states:
“An individual or other person subject to regulation under this chapter may not:
15) cause or require a borrower to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer”.