The customers flood policy expires we give them 45 days to get a new policy. What if the customers house floods during the 45 day waiting period when the previous policy has expired?

The customer is actually covered during the first 30 days after expiration which is a grace period. Thus the infamous 15 day gap. The bank can have blanket coverage for itself and the borrower (if it chooses) but cannot pass that cost on to the borrower. For safety and soundness purposes, many banks obtain such blanket coverage to avoid that uncovered period. It is possible to provide the force placed coverage via this policy...the properties are covered more or less via riders to the policy.

Who is paying for the grace period? The previous insurance company?

That is a standard insurance clause for this type of policy...there is a grace period during which coverage continues as part of the old policy.

WHAT IF -
Your tickler picks up the expiring policy 45days prior to expiration & you give borrower notice then.
45 days later it expires and your can force place without any gap in coverage ???

The Law requires you to notify the borrower giving them 45 days to obtain insurance once you learn you are uninsured or under-insured. You are insured until the policy expires, therefore until the policy expires you are insured and have no legitimate reason to begin your force placement procedures.

FWIW, we just had an exam (Fed) and had a specific meeting with our examiner to discuss this. Our procedure is to send the notice to the borrower 20 days prior to the expiration of the policy. We then give the borrower 45 days to renew the insurance, as required by law. The 45 days ends 5 days before the policy expires. If the borrower has not renewed the policy by then, we begin force placement. This gives us time to renew without a lapse in coverage because of the grace period. We've been doing it this way for years and had discussed it with our examiner several years ago. Because of the many opposing views here on BOL, we decided to discuss it again. Our examiners are again on board with us so we will continue our procedure as is. I know most people on here disagree with this approach, but I stated my case and our examiners agreed. I would suggest checking with your own examiner if you're unsure about your procedures.

...and if the examiner were to meet with an untimely demise???

Deena, as long as you have the "blessing" of your regulatory authority, and not just of a field examiner then you would be OK to follow their guidelines. This is not, however, what the Law says and I would want it in writing.

If you force place through the MPPP then their guidelines have different requirements. Search the MPFIG using MPPP and you will find the information on that program.

I do believe the Fed, out of Cleveland I think it was, came out with a statement supporting Deena's comment a few years back. Randy shared that with me a couple of years ago, so maybe he can confirm that. However, if I recall correctly Randy and I both came to the conclusion the opinion was incorrect.

Here is the applicable section from the regulation:


§ 339.7 Forced placement of flood insurance.

If a bank, or a servicer acting on behalf of the bank, determines, at any time during the term of a designated loan, that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required under § 339.3, then the bank or its servicer shall notify the borrower that the borrower should obtain flood insurance, at the borrower's expense, in an amount at least equal to the amount required under § 339.3, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the bank or its servicer shall purchase insurance on the borrower's behalf. The bank or its servicer may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance.


Until the policy expires the bank is insured, therefore starting the force placement procedures before the policy's expiration date is not in accordance with the regulation. The bank does not have knowledge it is not insured until the policy expires and no renewal has been received.

I have attended FEMA conferences with representatives of every bank regulatory agency on the panel along with FEMA and all have stated that the borrower paid force placed coverage cannot start before the end of the 45 day notice period. I have also implemented/reviewed flood processes as a banker and consultant, and all regulators expected this and agree and acknowledge the 15 day gap. You can insure anything you want to protect the bank (and can cover the borrower), but the borrower is not supposed to be charged until the 45 days are up.

Here is a recent FED article:

http://www.philadelphiafed.org/bank-reso...arter/q2_03.cfm

Dan, our position is that the law requires us to begin the process if/when we become aware that the property is uninsured or underinsured, but it does not prohibit us from starting the process under other circumstances, such as when we know the policy is due to expire. We do not believe the uninsured/underinsured situation is the only time we can begin the process, it's just one time when we must begin the process. I had a long discussion with Randy about this a while back and he does agree with you (and usually I do, too), but we're very comfortable with our position on this one, and we have documented everything for future reference.