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#1381856 - 04/27/10 01:25 PM Flood insurance - effective date
donnac Offline
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Customer's flood insurance expired 2/7/10. We started 45 day force placement procedures. Customer pays flood premium on 3/19/10.

The flood insurance company sends us a declaration page that shows the policy issue date is 3/19/10, but the policy period is from 4/18/10 to 4/18/11. The flood insurance company says that because their policy lapsed, there's a 30 day waiting period.

I don't think there's a 30 day waiting period, even though their policy lapsed. Is this correct?

Thanks.

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#1381870 - 04/27/10 01:49 PM Re: Flood insurance - effective date donnac
M Cockrell Offline
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from the Mandatory Purchase of Flood Insurance Guidelines (pg 34)

f. Waiting Period and Exceptions
The 1994 Reform Act modifies the waiting period required before an NFIP policy can go into effect from 5 days to 30 days. This 30-day wait is for "coverage under a new contract for flood insurance" and "any modification to coverage under an existing flood insurance contract." The express intent of Congress in mandating a 30-day waiting period was to prevent the purchase of flood insurance at times of imminent flood loss. Therefore, unless an exception applies, as described in the following two subsections, a 30-day waiting period applies.

(1) Coverage Obtained in Conjunction With a Loan
Exceptions to the 30-day waiting period apply when coverage is placed in conjunction with loan activity or the remapping of a community. The 1994 Reform Act (42 U.S.C. 4013(c)) contains what is called the "initial purchase" provision, which states the 30-day waiting period does not apply to the following instances:

• "The initial purchase of flood insurance...when the purchase is in connection with the making, increasing, extension, or renewal of a loan," or

• "The initial purchase of flood insurance...pursuant to a [map] revision or updating of floodplain areas of flood zones" within a 1-year period.

The effective date of coverage is 12:01 a.m. (local time) on the first calendar day after the application date and the presentation of payment of the premium.

It is significant to note that the first exception described above to the 30-day waiting period (when the initial purchase of flood insurance is in connection with the making, increasing, extension, or renewal of a loan) is much broader than it appears. Pursuant to FIA Policy Issuance #5-98 [see #3], effective October 1, 1998 (see Appendix 8), the FIA has interpreted the exception to the 30-day waiting period to apply in situations pertaining to refinancing, placement of second mortgages, and modification of existing mortgages. The Policy Issuance also applies to force placement, increased limits at renewal, and map revisions. For a detailed description of the waiting period rules, refer to the FIA Policy Issuance.
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#1382575 - 04/28/10 02:20 AM Re: Flood insurance - effective date M Cockrell
rlcarey Online
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There was another recent thread on this matter and I think the conclusion was that in the case of an expired policy that was not paid within the 30 day grace period, then a 30 day wait period was being enforced by FEMA.
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#1382619 - 04/28/10 12:32 PM Re: Flood insurance - effective date rlcarey
M Cockrell Offline
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Randy, do you have a link for that thread?

So, theoretically, a borrower could allow flood insurance to lapse past the 30-day grace period, re-purchase on day 31, but have a 30-day wait before it becomes effective. In essence being without coverage for 61 days, but the lender would still be required to force place on day 46 (and without the 30-day wait)!

It seems to me, if that's FEMA's interpretation, it is contrary to what's stated in the guidelines: "The express intent of Congress in mandating a 30-day waiting period was to prevent the purchase of flood insurance at times of imminent flood loss." Therefore, "Exceptions to the 30-day waiting period apply when coverage is placed in conjunction with loan activity."

Congress doesn't want homeowners going out to purchase flood insurance as Katrina/Rita is coming ashore, but they MANDATE the coverage be obtained if it's to protect a borrower [this, of course, because consumers don't have enough sense to protect their own interest & Congress (in their [sarcasm font]infinite[/sarcasm font] wisdom) does].
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#1384652 - 04/30/10 08:41 PM Re: Flood insurance - effective date M Cockrell
Glutes Offline
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Any other updates on this?

Our interpretation of the 30 day waiting period is the same as M Cockrell's. Essentially, if the borrower is purchasing flood insurance because their lender is requiring them to by law, there is no 30 day waiting period.

We refer to the following from pg. 6-2 of the Mandatory Purchase of Flood Insurance Guidelines on the 30-day waiting perid:

"3. New Policy (in connection with lender requirement)—The 30- day waiting period does not apply when flood insurance is required as a result of a lender determining that a loan on a building in a Special Flood Hazard Area (SFHA) that does not have flood insurance coverage should be protected by flood insurance. The coverage is effective upon the completion of an application and the presentment of payment of premium. (Example: presentment of premium and application date—April 3, policy effective date—April 3.)

In the event that that an existing flood policy expires, the loan ceases to be protected by flood insurance. When the lender identifies this and then sends the 45 day notification letter, this IMO would constitue "the lender determining that a loan on a building in a SFHA that does not have flood insurance coverage should be protected by flood insurance." Furthermore, the policy that the borrower subsequently purchases would be considered a "new" policy and it should be effective upon completion of an application and presentment of payment.

I don't see where the guidance states that if the borrower purchases a new policy outside the 30 day grace period following the expiration of a previous policy that a 30 day waiting period would apply.

Any clarification on this?

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#1384799 - 05/02/10 08:02 PM Re: Flood insurance - effective date Glutes
donnac Offline
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We talked to a NFIP representative & was told that if the customer does not pay the renewal premium within the 30 day grace period for renewals, there is a 30 day waiting period. If I understand correctly, the payment must be received by day 29.

This week, we've had 2 instances of customers not paying the renewal premium within the 30 day grace period. Both policies show a 30 day waiting period to be effective.

We now have to force place for the 30 day period that they don't have insurance coverage.

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#1384811 - 05/03/10 12:21 PM Re: Flood insurance - effective date donnac
M Cockrell Offline
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That's just asinine (or, maybe more appropriately, assinine)!
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#1384812 - 05/03/10 12:22 PM Re: Flood insurance - effective date M Cockrell
M Cockrell Offline
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Had to post again (to get me off the 666 number of postings)!
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#1384824 - 05/03/10 01:10 PM Re: Flood insurance - effective date M Cockrell
MarieR Offline
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I have a dumb question. How can you forceplace a policy when there is already a poilcy in place? I thought the NFIP would only write one policy per building. Thanks
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#1384828 - 05/03/10 01:22 PM Re: Flood insurance - effective date MarieR
M Cockrell Offline
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Originally Posted By: MarieR
I have a dumb question. How can you forceplace a policy when there is already a poilcy in place? I thought the NFIP would only write one policy per building. Thanks

An excellent point Marie. If the FI has proof the client has obtained insurance, even though the coverage won't begin for another 30 days, how can we force place at day 46???
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#1384834 - 05/03/10 01:34 PM Re: Flood insurance - effective date M Cockrell
Dani York, CRCM Offline
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Even though you have proof, there is no actual policy until that effective date. So you can still force-place a policy in the interim.
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#1384852 - 05/03/10 02:12 PM Re: Flood insurance - effective date MarieR
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Some banks use a private insuror to handle the lender placed policies so you could have an NFIP policy + a private one in place at the same time.
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#1384927 - 05/03/10 03:58 PM Re: Flood insurance - effective date donnac
Glutes Offline
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Originally Posted By: donnac
We talked to a NFIP representative & was told that if the customer does not pay the renewal premium within the 30 day grace period for renewals, there is a 30 day waiting period. If I understand correctly, the payment must be received by day 29.

This week, we've had 2 instances of customers not paying the renewal premium within the 30 day grace period. Both policies show a 30 day waiting period to be effective.

We now have to force place for the 30 day period that they don't have insurance coverage.



This is not meant to be argumentative, but If the purchase for a new policy is lender required, there is no 30 day waiting period. It should be as simple as that. That is what I would have communicated to the NFIP representative. I would have provided him with the "Lender Requirement" guidance previously provided above. The expired policy should be irrelevant with respect to a waiting period for the new policy. If the borrower is purchasing the new policy because the lender is requiring them to, there should not be a waiting period.

Interestingly, when we've been faced with a similar situation (expired policy) and the borrower subsequently goes out and gets a new policy beyond the 30 day grace period, we've ALWAYS had that policy effective the day the borrower paid in full. I believe there was a scenario where one time they applied a 30 day waiting period, but when we contacted the insurance company for the borrower they communicated that they didn't know the purchase was lender required so they dropped the 30 day wait and made the policy effective on the day it was paid in full.

Doesn't the application for flood insurance simply ask if the application is being submitted due to lender requirement? I don't recall seeing it ask if the applicant just had a flood policy that expired more than 30 days ago

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#1384966 - 05/03/10 05:01 PM Re: Flood insurance - effective date Glutes
Dani York, CRCM Offline
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V. RENEWAL EFFECTIVE DATE
DETERMINATION
Renewal dates are calculated as follows:
• If the Final Notice and the premium
payment are received by the NFIP within
30 days following the expiration, the policy
will be issued under the same policy
number as the previous term, with no
lapse in coverage. For example, if the
policy expires on May 1, the Final Notice
and premium payment must be received
on or before May 30.
• If the Final Notice and the premium
payment are received by the NFIP after
the 30-day period, but within 90 days
following the expiration, the policy will be
placed in force 30 days following receipt
by the NFIP.
• If the Final Notice and the premium
payment are received after 90 days
following the expiration date, the agent
must submit a new application with the full
annual premium. The standard 30-day
wait rules will apply.

This is from the NFIP Flood insurance manual. Here is the link:
http://www.fema.gov/pdf/nfip/manual201005/cover.pdf

If you read this section, it implies that the renewal policy paid after the 30 day grace period is not a new policy, but a renewal/re-instatement of the existing policy. Appendix 6 in the Mandatory Guidelines does not show any 30-day waiting period exception for renewal policies that fit this scenario, only new policies. So since the renewal/re-instated policy is not new, the NFIP may enforce the 30-day waiting period.

And even though it is the "old" policy, the insurance is not effective so you can still force place in the interim.
Last edited by Dani York; 05/03/10 05:05 PM.
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#1385028 - 05/03/10 05:52 PM Re: Flood insurance - effective date Dani York, CRCM
M Cockrell Offline
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So, on day 1 of flood insurance expiration, you inform your client they have 45 days to purchase flood insurance or you'll have no alternative but to force-place it for them.

Then, because life happens (especially to procrastinators), the customer doesn't get around to doing anything about it 'til day 35.

The insurance company says, "Bad customer! Now you'll have to wait 30 days before the coverage will be re-instituted."

In the interim, day 46 rolls around and the FI has no choice but to force-place a policy.

So, through circumstances beyond their control, and even though you told them they had 45 days, the client now has to pay for the force-placed policy (at the end of the note) in addition to the policy they just reinstated?

I know this is a government-mandated program, but that makes absolutely no sense whatsoever!
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#1385036 - 05/03/10 05:58 PM Re: Flood insurance - effective date M Cockrell
M Cockrell Offline
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BTW, my frustration on this issue is directed at no one but Congress.
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#1385041 - 05/03/10 06:04 PM Re: Flood insurance - effective date M Cockrell
Dani York, CRCM Offline
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They won't pay for the entire force-placed premium, just the first 15 days. You would flat-cancel the force-placed policy to the effective date of the renewal/re-instated policy, and refund the un-earned premium back to the loan balance. Your force-placement insurance company should refund you the appropriate amount to offset the credit to the customer.

The customer not only receives your first forceplacement letter, they also receive pre-expiration letters form their insurance company at least 30 days in advance of expiration. In effect, your customer has had AT LEAST 60 days notice to pay the renewal premium with no adverse consequences.

Just remember, flood compliance is not a consumer protection reg, it's a FEMA protection reg.
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#1385060 - 05/03/10 06:29 PM Re: Flood insurance - effective date Dani York, CRCM
M Cockrell Offline
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Originally Posted By: Dani York
They won't pay for the entire force-placed premium, just the first 15 days.

Even so, how can you tell them they have 45 days to purchase or obtain insurance, and then when they've done so, still turn around and charge them for day 46 through a forced 30-day waiting period???

Originally Posted By: Dani York
Just remember, flood compliance is not a consumer protection reg, it's a FEMA protection reg.

Well, if FEMA really wants to protect itself, Congress can do away with the whole program, allowing lenders, borrowers and their insurance agents to decide if a property is worth the associated risks to finance.

You want to pay the premiums for a Corvette or a Chevette? A Ferarri or a Fiesta?

By the same token, do you want to pay the premiums for a home in Orange Beach, AL, or Ord, NB?
Last edited by M Cockrell; 05/03/10 06:30 PM. Reason: poster error
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#1385075 - 05/03/10 06:50 PM Re: Flood insurance - effective date M Cockrell
Dani York, CRCM Offline
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Originally Posted By: M Cockrell
Originally Posted By: Dani York
They won't pay for the entire force-placed premium, just the first 15 days.

Even so, how can you tell them they have 45 days to purchase or obtain insurance, and then when they've done so, still turn around and charge them for day 46 through a forced 30-day waiting period???


Granted they may have purchased the flood insurance that the lender required, BUT they don't have the insurance until the 30-day waiting period is over. If they didn't want to be forced to endure the 30-day waiting period, they should have paid their renewal on time. I've just always told them sorry, but we are required by law to force-place on them until their insurance is effective.

And I agree with your frustration with the government on this.
Last edited by Dani York; 05/03/10 06:52 PM.
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#1385118 - 05/03/10 07:38 PM Re: Flood insurance - effective date Dani York, CRCM
Glutes Offline
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From the same flood insurance manual:

Second, the 30-day waiting period DOES NOT APPLY when flood insurance is required as a
result of a lender determining that a loan
which does not have flood insurance
coverage should be protected by flood
insurance
, because the building securing a
loan is located in an SFHA. The coverage
is effective upon the completion of an
application and the presentment of
payment of premium. This exemption from
the 30-day waiting period applies only to
loans in SFHAs, i.e., those loans for which
the statute requires flood insurance.



When it comes to guidance on the exemption of the 30 day waiting period, I would defer to the language pertaining to the 30 day waiting period exemptions rather than the "renewal" language. The renewal language discusses renewals. The 30 day exemption language is saying" "hey, the 30 day wait period doesn't apply in these cases".

One such case where it says the 30 day waiting period doesn't apply is when the purchase is "in connection with lender requirement". The verbiage in this section is pretty straightforward and clear as far as I'm concerned. It does not provide restrictive language as far as what the "lender requirement" is nor does it directly say nor does it imply that this exemption does not apply if the purchase of flood insurance is NOT the initial purchase. It simply states that there is no 30-day waiting period if the lender is requiring the flood insurance because it has discovered that a loan without it should have it. When the bank identifies that a loan policy has expired (a loan requiring flood insurance is now without it), this would be EXACTLY this scenario. Nowhere does it say in this exemption language that it doesn't apply if the purchase is beyond the 30 day grace period of a previously expiring policy.

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#1385153 - 05/03/10 08:17 PM Re: Flood insurance - effective date Dani York, CRCM
M Cockrell Offline
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Okay. A GoodSearch yielded the following exception to the 30-day wait: "If flood insurance is required as a result of a lender determining that a loan that does not have flood insurance coverage should be protected by flood insurance." This appears on FEMA's website under "Facts You Should Know" (item 6, 2nd paragraph).
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#1385197 - 05/03/10 08:51 PM Re: Flood insurance - effective date M Cockrell
Dani York, CRCM Offline
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Regardless, the point is FEMA and the NFIP are enforcing the 30-day wait in these instances. It's their program, law, rules, etc, and they can do what they want. If you disagree, call them and point out your citations and see what they say. I have never had any luck getting them to waive the 30-day waiting period in cases like these. I would be interested to see what answer they give you.

Until you can convince them to waive the waiting period on your late renewal policies, it would be prudent to go trhrough with the forceplacement process from day 46 to the effective date of your late renewal policy so you don't get cited for a flood violation in an exam for lack of coverage during that interim time frame.
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#1385198 - 05/03/10 08:53 PM Re: Flood insurance - effective date Dani York, CRCM
M Cockrell Offline
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Agreed.

And, again, my argument isn't with you, but with Congress, FEMA, NFIP, et al.

Thanks for your thoughts.
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#1385207 - 05/03/10 09:00 PM Re: Flood insurance - effective date M Cockrell
Dani York, CRCM Offline
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No problem. smile

BTW here is a link to the thread I believe Randy was referring to earlier.

http://www.bankersonline.com/forum/ubbth...rue#Post1353550

Check out post #1353329 by David Dickinson. He pasted an article that he wrote awhile back and there is a reference to the 30 day waiting period on late renewal payments in it. He may be able to shed some more light on where to find this and the why's behind it.
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#1385241 - 05/03/10 10:14 PM Re: Flood insurance - effective date Dani York, CRCM
Glutes Offline
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Fortunately for us, we have never had any problem with getting the 30 day waiting period waived when a policy is purchased beyond the 30 day grace period. If FEMA is enforcing this, they haven't been in our case.

Maybe I'd have a better appreciation for this if we got some pushback from the NFIP on this.....(Knocking on wood)....just grateful we haven't!

FYI, thanks Dani for providing the link to the previous discussion Randy referrenced earlier.

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