ASSEMBLY FINANCIAL INSTITUTIONS COMMITTEE

 

STATEMENT TO

 

ASSEMBLY, No. 2730

 

with committee amendments

 

STATE OF NEW JERSEY

 

DATED: MARCH 3, 1997

 

      The Assembly Financial Institutions Committee reports favorably and with amendments Assembly Bill No. 2730.

      As amended, this bill clarifies the rights of the parties to a loan agreement in which the borrower is required to insure the collateral for the loan. It permits the lender to obtain collateral protection insurance if the borrower does not comply with the borrower's obligations regarding the purchase of insurance. Under the bill, the lender is required to send a notice to the borrower, by certified mail, return receipt requested, or if rejected by the borrower or not deliverable, by United States Mail, postage prepaid, indicating to the borrower that the creditor has no proof that the borrower has complied with the requirement to purchase collateral protection insurance. If the borrower does not provide evidence of such purchase within 30 days from the date of the notice, the lender may purchase insurance to protect the lender's interest in the collateral and the borrower will be required to reimburse the lender for the lender's cost of purchasing collateral protection insurance. The lender must send a notice of the purchase of collateral protection insurance, including the cost of the insurance, to the borrower by certified mail, return receipt requested, or if rejected by the borrower or not deliverable, by United States mail, postage prepaid, and inform the borrower that the borrower is to reimburse the lender by cash within 30 days, or if that has not taken place, the lender may add the cost to the principal balance of the loan.

      The committee amended the bill to require that notices be sent by certified mail, return receipt requested at least 30 days in advance of the purchase of collateral protection insurance by the creditor; to provide the borrower with the information that even if the creditor purchases collateral protection insurance it may not cover the value of the property possibly resulting in the borrower being underinsured; and to clarify that if the purchase of collateral protection insurance is due to the error of the creditor, the creditor may be liable to the debtor, guarantor or other party for the place of the collateral protection insurance.