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#1592396 - 08/16/11 04:09 PM Timing to Pay for Flood Insurance
Will B Offline
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On a loan to purchase a property located in a flood zone can the borrower pay for the insurance at closing, or are they required to pay for the insurance before they own the property?
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Flood Compliance
#1592440 - 08/16/11 05:05 PM Re: Timing to Pay for Flood Insurance Will B
#Just Jay Offline
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#Just Jay
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Cheeseheadland
Unless they are buying the insurance from you, how can they pay for it at the closing?? Either they bring a paid receipt to closing and be compliant, or they purchase it with proceeds after closing, in which case you closed a loan w/o insurance, and now have a violation.
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#1592441 - 08/16/11 05:06 PM Re: Timing to Pay for Flood Insurance Will B
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
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#1592469 - 08/16/11 05:44 PM Re: Timing to Pay for Flood Insurance Dan Persfull
Will B Offline
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Thanks Dan. I did a search but didn't see that thread.

In my view, the sections cited in that thread from the NFIP Flood Insurance Manual say that the policy will be in effect on the day of closing if you follow that process. It also says that a check from closing such as the settlement agent is the presentment of the premium. Since the regulatory requirement is to have insurance in place at closing, then this appears to be an acceptable practice to meet the regulatory requirement.

But this seems to be in conflict with the FEMA Mandatory Purchase of Flood Insurance Guidelines which says on page 38 that the effective date of coverage is 12:01 a.m.
(local time) on the first calendar day after
the application date and the presentment of
premium.

Where does that leave lenders?
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#1592507 - 08/16/11 06:46 PM Re: Timing to Pay for Flood Insurance Will B
Dan Persfull Offline
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Bloomington, IN
Will, as I stated in the thread the discussed topic appears to address how the 30 day waiting period will be handled based on the presentment of payment, but the presentment of payment to the agent is not present of payment to the NFIP, therefore coverage does not begin until 12:01 AM of the day after they, not the agent, received the application and premium. If the agent waits 4 or 5 days before sending in the application and premium it is possible the NFIP will not receive them within the required 10 days and then you have a problem with the effective date being after the loan date.

This is a risk for you to decide if you want to take, but one I would consider carefully due to the CMPs given for flood violations and the scrutiny that flood compliance gets. It would only take a couple of foul ups to get assessed penalties.
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#1755852 - 11/07/12 02:51 PM Re: Timing to Pay for Flood Insurance Will B
Sugarbaker Offline
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Joined: Nov 2005
Posts: 265
I need further clarification. We have a purchase money loan where collateral is in a flood zone. It is an HPML so we are requiring escrow. The lender collected the insurance premium as part of escrow and then paid the insurance premium from escrow , which was after closing. (This is our first flood escrow so we need to work out the kinks.) Going forward how should we handle payment of flood insurance when we are escrowing? Should we require the borrower pay the initial premium and then escrow for each year thereafter? Any other options I'm missing?
Thanks!

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#1755858 - 11/07/12 02:59 PM Re: Timing to Pay for Flood Insurance Will B
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Should we require the borrower pay the initial premium and then escrow for each year thereafter?

Yes.

Also if you search using +flood +premium +closing as the search term you will find additional discussions on the topic.
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The opinions expressed are mine and they are not to be taken as legal advice.

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