Renewing Force Placed Flood Insurance

Issue/Inquiry

A borrower's flood insurance policy expires on August 1, 2015. There is also a forced placed policy expiring on September 20, 2015, which was obtained by the Bank to make up a short fall in coverage under the borrower’s policy. If the borrower's policy is renewed but is still deficient, does the regulation require a 45-day notice to be mailed at the time the Bank receives the renewal policy or does it have to wait until the forced-placed policy expires?

Response Summary

The flood rules require the Bank to notify the borrower whenever it determines the flood coverage is not adequate, and to force place coverage if the borrower does not provide proof of coverage within 45 days of the notice. In this case, if the borrower renews his own coverage but does not increase it, the coverage on the property will become inadequate when the existing force placed coverage expires. At that time, the Bank will have to provide the borrower with the 45-day notice.

Response Detail

The flood rules for force placed insurance require a financial institution to notify the borrower at any time it determines that the flood insurance coverage for the property securing the loan is inadequate or does not exist, and to obtain flood insurance coverage itself within 45 days of the notice, if the borrower does not do so. The sending of the notice is a requisite for charging the borrower. 12 CFR 339.7; Interagency Flood Q&A, question 62.

In this case, the property in question is covered by a flood insurance policy obtained by the borrower, which does not provide sufficient coverage, and by a force placed policy which makes up the difference. If the borrower renews his own flood insurance policy but does not increase its coverage, the coverage on the property would become inadequate when the existing force placed insurance expires on September 20th. In the event it becomes necessary to renew the force placed policy, the bank will be required to go through the 45-day notification procedure again.

Under the Biggert-Waters amendments to the Flood Disaster Protection Act, the premiums and fees the Bank may charge the borrower include premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide sufficient coverage amount. In such case, however, the Bank must terminate the forced-place coverage within 30 days of receiving proof of adequate coverage from the borrower. 42 USC 4012a(e)(2), (3).

If the Bank’s force placed insurance policy was obtained through the Mortgage Portfolio Protection Program (“MPPP”), it must begin sending the renewal notices 45 days in advance of the expiration of the policy, with the renewal policy taking effect upon the expiration of the present policy.

When the borrower provides the Bank with the borrower’s renewal policy, the Bank will be able to determine whether or not it has adequate coverage and whether you’ll need to begin sending the appropriate notices.

This entry was posted on Monday, June 1st, 2015 at 3:00 pm.