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Mandatory Purchase of Flood Insurance
Answer by Dan Persfull, BOL Guru
Guru Bios
Question: It is my understanding that the only exception to mandatory flood insurance is for loans that have both a loan amount of $5,000 or less and a repayment term of one year or less. We recently received notification that a property securing one of our loans was re-classified and is now located in a flood zone. The loan is 4 1/2 years into a 5 year term (it matures in September 2008). There is only a $3,700 balance remaining on the original $29,000 loan. Since we were notified when the remaining balance is under $5,000 and the remaining term is under one year, is it mandatory to purchase flood insurance or does the above exception apply?
Answer: You are required to obtain flood insurance unless you want to refinance the loan for less than one year. The original terms of the loan were not $5,000 or less or for one year or less.
First published on BankersOnline.com 4/21/08
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