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Oops! We May Have Flood Penalty Disaster
Answer by Randy Carey and David Dickinson, BOL Gurus
Guru Bios
Question: My company is approaching an audit from the OTS. We have found that many files have not had flood determinations pulled and they are in a flood zone. How do we rectify this situation? Do I send the notices and a letter now? What penalties do I face for this problem?
Answer by Randy Carey: Yes, you need to proceed with sending out notices and obtaining the appropriate flood insurance. You are looking at potentially $385 for every missed flood determination, every missed notice of special flood hazard and every loan where flood insurance was required and not obtained. That could result in a single fine for every loan not in a flood zone and three fines for every loan in a flood zone.
Answer by David Dickinson: Randy is correct about sending the notices and getting the appropriate insurance ASAP. Other than this, there's nothing you can do to avoid a CMP. The violations still exist. However, you may be able to demonstrate to your regulators that you have identified the issues and "corrected" what you can. The questions that still exist are: Why did these happen in the first place (as these aren't new requirements)? Has management implemented corrective procedures so that new loans will not have the same violations and flood insurance will be renewed? If you can satisfactorily answer these questions you may be able to avoid a CMP, but it will be at the examiners' and/or FEMA's discretion.
First published on BankersOnline.com 12/03/07
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