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Flood documentation
Question: We have a loan secured by improved real property that is located in a flood hazard area. We have given the required notice to the customer. Under the flood hazard regulations, are we required to keep documentation in the file that demonstrates that flood insurance is in place? Do we have to maintain this documentation for the life of the loan?
Answer: Yes. Your responsibility doesn't end when the loan is closed. Your responsibility only begins. The first step is to do what you have done: notify the customer that their property is located in a flood hazard zone and that they must obtain and maintain flood hazard insurance on the property. You should document the fact that you sent this notice.
Next, be sure to obtain proof of insurance before closing the loan. This, too, should go into the loan file. Examiners will look for it.
Finally, you must make sure that insurance stays in place on that property during the life of the loan. This means that you should maintain a tickler system to review proof of insurance as policies come due. Also, if you are managing an escrow account in connection with the loan, the flood insurance premium must be included in the escrow account.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 4, 5/02
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