Am I reading this correctly that if I get a cancellation or and expiration notice from the insurance provider that I am to send a 45 day letter to the customer and start force placement of flood insurance? I found this in the flood Q and A. Where in the law can I find this? I am having trouble finding information from Biggert-waters act. Thanks,

The Act and Regulation require the lender, or its servicer, to send notice to the borrower upon making a determination that the improved real estate collateral’s insurance coverage has expired or is less than the amount required for that particular property, such as upon receipt of the notice of cancellation or expiration from the insurance provider.

All regulators have similar regulations:

208.25(g) Forced placement of flood insurance. If a member 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 paragraph (c) of this section, 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 paragraph (c) of this section, for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification, then the member bank or its servicer shall purchase insurance on the borrower’s behalf. The member bank or its servicer may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance.

This has been required for years and has nothing to do with the B-W Act.

So I do send a 45 day notice when I get a cancellation or expiration notice from the insurance provider, correct? I found out that there is a difference between cancellation notice and expiration notice. Thanks for your help.

At any point that you know a property is either uninsured or under insured you are required to beginning the 45 day notice process.

If you are unfamiliar with the flood insurance rules, I suggest you go back and read the last 20 or so posts in this forum and read the regulator's Q and A document thoroughly:

http://www.bankersonline.com/tools/flood_faq_2011_10_17.pdf

I spoke to FEMA regarding the 45 days and I was told that the 45 days only pertains to a new loan and not when the insurance has expired. I was told that we have 29 days from the expiration date to get the insurance paid or we would have to force place. I have read the FAQ's but still confused.

I spoke to FEMA regarding the 45 days and I was told that the 45 days only pertains to a new loan and not when the insurance has expired.

What was the question you asked them. Giving us the answer without the question does not put this into any sort of context. Plus, FEMA is not the enforcer for any 45 day requirement placed on the bank.

Sorry - we have a customer that has had flood insurance but it expired on 2/3/14 and he refused to renew it because he wants to dispute that it is in a flood area. So we wanted to know how long we had before we had to forced place on an expired policy. Because we have a lot of customers that wait until the last day of the grace period to pay, so we thought he would do the same, but he didn't so our audit firm told us we had 45 from when we were aware of the expiration. But I wanted to clarify so I called FEMA and they transferred me to the Help Center. And he told me the 45 days only applies to new loans to obtain the policy. But once that policy expires there has to be a new elevation certificate which takes awhile to get. So we just want to know if we are in violation of any flood rules because we don't have insurance and the customer is in the process of getting an elevation certificate and now that it expired in order for us to force place we have to get an elevation certificate. Just really looking for some clear requirements on policies that expire because the customer didn't pay the annual renewal and how to handle.

I think you are confusing what it takes to get a flood insurance policy with the regulatory requirements imposed on banks by our primary regulators.

You are require to send a 45 day notice to a customer as soon as you are aware that a property in a SFHA is either uninsured or underinsured. You are required to force place a flood insurance policy on the property at the time of the expiration of the 45 day period (or earlier if you so choose).

How long and what a customer has to do it get a policy or reinstate a policy really is not any of your concern as it does not impact your regulatory requirements as a bank one way or the other.

So as long as we force place we should be ok even though there will be a lapse in coverage because of the elevation certificate requirements. That to me would be more of a Safety and Soundness issue since we do not have coverage.
We do not have very many loans in flood areas and this is the first one we have had that has expired. You have been very helpful.

Our lending compliance auditor is stating on force-placed flood renewals that we have to send a letter the day after the expiration of policy letting the customer know they have 45-days to purchase a policy or the bank will force-place. Currently, our force-place company is sending a letter 45 days before the expiration date and then a second letter the day after expiration stating they were notified 45 days ago and the bank will now force-place coverage. My understanding is you can not charge the customer until the 46th day of their policy expiring but I'm just unsure about the letters and their timeing. Will you please clarify the correct process?

You gotta watch those 3rd parties-we have the very same problem with ours, and it has been HE double toothpicks trying to get it straightened out. We have thousands of loans in SFHAs so it seems easier to try to set the 3rd party straight than to take back all the loans and monitor ourselves.

Isn't Q/A still in the proposed stage which would mean we cannot sent the 45 day notice until the policy expires?

I don't understand this comment on a thread that is 16 months old??? Can you explain in more detail what you are referring too??

The subject of sending the 45 day notice prior to expiration of a flood policy just came up so this is why I am commenting now 16 months later. You had made reference to the flood Q/A #60 which is in the proposed stage. My question is whether we can send a 45 day flood notice based on receiving a cancellation notice from the insurance company. It would appear that we cannot until Q/A #60 gets finalized.

My question is whether we can send a 45 day flood notice based on receiving a cancellation notice from the insurance company.

It is not if you can, you must. You have been notified that the property is no longer insured. What would you be waiting for???

Besides, if you have read the new final flood rules that were just issued you would find:

"The Agencies note that, to ensure that adequate flood insurance coverage is maintained throughout the term of the loan and to comply with the Federal flood statutes, a regulated lending institution or its servicer must notify a borrower whenever flood insurance on the collateral has expired or is less than the amount required for the property. The regulated lending institution or its servicer must send this notice upon making a determination that the flood insurance coverage is inadequate or has expired, such as upon receipt of the notice of cancellation or expiration from the insurance provider or as a result of an internal flood policy monitoring system."

I agree with you completely. I showed the examiner the language you are citing that is in the proposed Q/A & final rule and she is stating that the current Act the way it stands now prohibits the lender form sending out the notice until the insurance has expired.

OK, I am confused. Are you talking about a policy expiring or a notice from the NFIP or the WYO company that the flood insurance has been cancelled??

You cannot start your 45 day clock prior to an existing policy expiring. If that is what she is saying, that is a correct statement. You can send your 45 day letter on the day after the flood insurance policy expires. You can force place a flood insurance policy on that same day. You can charge the customer when the 45 day letter expires for the entire premium that was effective the day after their old policy expired. If the borrower provides the bank a new flood insurance policy, the bank is required to cancel the force placed insurance on the day that the new policy will be or was effective.

If you receive a cancellation notice, you can send the 45 day letter the day after the cancellation date contained in the notice of cancelation.

We took on a loan portfolio in an acquisition. Upon review of the files for a loan audit, it was discovered that the property is in a flood zone. We did not have proof of insurance in the file. We sent the 45 day letter on 1/8 stating that the borrower needs to have coverage or we will force place. Customer provided us with flood insurance dec page on 2/13 and there was a first mortgagee listed. We did a soft pull and noticed that the borrower had insufficient coverage of $6,000. Do we need to send another letter and start our forced place clock over, or can we go off of the original letter and force place on 2/23?

Didn't you tell them how much they needed to purchase in the first letter??

Nope, I might need to take a closer look at the flood program. ...

the letter listed the requirement for the lessor of the 3. When the customer responded and sent us the dec page for their current flood insurance policy (day 36), it listed that another bank has a 1st on the property. That was when we did a soft pull and obtained the balance of the first, which made the current policy insufficient to cover the balance of both loans (lessor of the 3).

Well, you are not in a very good position that is for sure depending on how the "lessor of the 3" was worded. Did it say your loan balance or the balance of all loans secured by the property? I would probably give them some additional time to increase the coverage - even send them another 45 day letter with an explanation. If you didn't clearly communicate what they needed to get and then force place a private policy on top of the NFIP policy, I think you are getting into UDAAP territory unless you have an ability to force place a $6,000 umbrella policy to supplement their current policy. I would also suggest a thorough scrubbing of the portfolio you just acquired. Being in second position should not have been a shock and this loan has probably been under-insured for a long time.

The exact wording of the letter states"your loan is in a standard flood hazard area. What does this mean for you? Federal regulation requires that you provide flood insurance to maintain this loan in an amount equal to the lessor of: the outstanding principle balance; or the maximum insurance amount available thorugh NFIP; or the replacement cost value of the structure." then it goes on to explain that we may have to force place if we don't have insurance and force place adequate coverage.

Well, when I read this: "requires that you provide flood insurance to maintain this loan in an amount equal to the lessor of: the outstanding principle balance", it is telling me that if I have a loan with you with an outstanding principal balance of $100,000, then I need $100,000 in coverage. The fact that I have another loan secured by a first mortgage for $150,000 and really need $250,000 in coverage is truly not clear at all. You have to remember that most consumers have no clue about flood insurance requirements. That is why many banks are much more clear in their letters to make sure the borrower understands the minimum requirements being imposed by the bank. Sounds like they complied with your letter to me.

Thanks for the input Randy. I have recommended that we pull in our consultants on this issue. I see the issue. Do most banks you consulted for state a dollar amount of coverage that the borrower needed in their letters? That would be the only way I could see the borrower fully understanding our letter. I don't think we can reasonably expect a consumer to properly calculate their required flood insurance.

I will check into the $6,000 umbrella policy (I think we do have that option). If we do have that option, would you recommend sending a new letter and starting the 45 day period over (I think that's what you're getting at, and it makes sense, but I just want to make sure I'm on the same page)?

If you have that option (umbrella), that is what I would do and force place it today. That should keep the regulators off of your back. If the borrower comes through with a modified policy that meets your needs, then I would probably lobby for the bank to eat the cost of the umbrella policy for that short period of time rather than charging the borrower while you get this sorted out. Some of the banks that I worked with did state a specific dollar amount and some did not. Those that did not ran into this same problem more than once. I have always found that if you want the customer to do something, telling them exactly what they need to do is always the best policy.