7. Risk for Loss or Damage.
Under 38 CFR 36.4823, holders bear responsibility for any loss due to damage or destruction of the property or personal injury sustained in respect to such property from the date of acquisition by the holder to the date such risk is assumed by VA. Risk is assumed by VA on the day successful electronic acceptance of the “Transfer of Custody” event is indicated in the VALERI application. If the “Transfer of Custody” event is rejected, risk remains with the holder. Holders must file hazard insurance claims and obtain a settlement for covered losses. In accordance with 38 CFR 36.4829, insurance loss proceeds must be applied to reduce the total indebtedness if not used to restore the property.
Mr P. Says: The U.S. Code of Federal Regulations (CFR) places responsibility “for any loss due to damage or destruction of the property or personal injury sustained in respect to such property” on the mortgage holder. This responsibility is in turn passed down to the mortgage servicing company and inspectors and contractors in the field. The same CFR requires that the property is covered by an insurance policy. These requirements are the reason servicing companies require inspectors and contractors to look for, document and report any new or existing damages upon every visit to the property. Many insurance claims have time limits for filing a claim. If the action of, or lack of action, of an inspector or contractor causes non-payment of a claim the financial loss is normally passed on to them. This is why you have to have E&O (Errors & Omissions) insurance.