Request for Reimbursement for Insurance Claim

A bank asked GAO to allow its insurance claim, denied by the Department of Housing and Urban Development (HUD), for reimbursement of a $3,200 loss sustained when the borrower defaulted on a property improvement loan which the bank maintained was federally-insured. The bank reported the loan to HUD for insurance coverage when the loan was already in default. Federal law requires that the premiums be paid in advance. HUD billed the bank for the insurance premiums which were duly paid and then denied the bank's claim for indemnity. HUD had no authority to accept the loan report on the defaulted loan, to collect the premiums, and to provide the insurance coverage. The loan was never insured and the claim may not be paid.