SECTION 1. Section 27-5-3.2 of the General Laws in Chapter 27-5 entitled "Fire Insurance Policies and Reserves" is hereby amended to read as follows:

27-5-3.2. Property insurance. -- No person, bank, or lending institution, as defined in section 19-9-1 of the general laws, doing business in this state, whether acting under state or federal authority, which includes but is not limited to (1) a bank, savings bank, or trust company, as defined in this title, its affiliates or subsidiaries, (2) or a bank holding company, as defined in 12 U.S.C. section 1841, its affiliates or subsidiaries, (3) mortgage companies, and (4) any other individual, corporation, partnership, or association authorized to take deposits and/or to make loans of money under the provisions of chapters 20, 21, 22, 23, 24, 25, 25.2, and 25.3 of title 19, making a mortgage loan, shall, as a condition of the mortgage or as a term of the mortgage deed, require that the mortgagor carry property insurance on the property which is the subject of the mortgage in excess of the replacement cost of any buildings or appurtenances subject to the mortgage; provided, that if a mortgage is sold, transferred, conveyed, or assigned, when in the course of selling, transferring, conveying or assigning a mortgage, the servicing rights of said mortgage are similarly transferred, conveyed or assigned, then and in that event it shall be the responsibility of the holder of the mortgage to notify the insurance producer issuing the property insurance policy and the insurer in writing of that sale, transfer, conveyance, or assignment. This notice shall be made in writing and shall be sent to the insurance producer and the insurer within thirty (30) days of the sale, transfer, conveyance, or assignment by registered mail. In the event that the holder of a mortgage shall fail to notify the insurance producer and the insurer who issued the property insurance policy that is in force, in writing, of that sale, transfer, conveyance, or assignment within thirty (30) days, the holder shall indemnify and hold the insurance producer harmless.

SECTION 2. Chapter 19-9 of the General Laws entitled "Community Obligations and Banking Offenses" is hereby amended by adding thereto the following section:

19-9-34. Property insurance. -- Every lending institution shall be subject to the provisions of section 27-5-3.2 of the general laws.

SECTION 3. This act shall take effect on April 1, 2003.