What is the effective date of cancellation for a flood insurance policy? Is it the expiration date the policy shows, or is it date the grace period expires? We have flood insurance policies that state mortgage insurance coverage will remain in force for the 30 day grace period, and want to be sure we are quoting accurate information when contacting customers regarding expiring policies.
Thanks for your help !

The mortgagee is covered for an extra thirty days after expiration, but the policy is expired. If the insured fails to pay their premium prior to the due date, even though there is a grace period, it is not like before. They will likely lose any current subsidies their policy is provided and they most likely will have to get a flood elevation certificate. All that usually results in significant delays. You need to start your 45 day process the day after the policy expires.

Thanks Randy, that's what I was thinking!

So...
7/16/15 - flood policy expires.
7/17/15 - The bank sends a letter to the borrower informing them that flood insurance has expired and that we need proof of flood coverage within 45 days (and we would give them the date of 9/1/15 to have that proof to us or we will force place).
8/15/15 - The flood insurance grace period ends.
9/1/15 - The 45 day notice is up.

1. Could we have force placed flood insurance on 7/17/15?
2. But, we can't charge the borrower for the premium until 9/1/15?
3. But, it's ok for the premium to be a charge that pays for coverage from 7/17/15 - 7/17/16?

Yes



No. You can charge them on 7/17/15; however, if they purchase flood insurance you will have 30 days to refund them all premiums where the borrower's flood insurance coverage and the force placed policy coverage where both in effect.



Yes.

This is my understanding and if I am incorrect, hopefully a guru will speak up and correct me.

1. Could we have force placed flood insurance on 7/17/15? - Yes

2. But, we can't charge the borrower for the premium until 9/1/15? - That is no longer the case, you can charge them on the day you force place insurance if you want too. You have to reverse the charges of course if they provide a flood insurance policy. Most banks will probably continue to wait so they don't have to go through the reversal process on a regular basis.

3. But, it's ok for the premium to be a charge that pays for coverage from 7/17/15 - 7/17/16? - Yes

From the preamble to the recent final rules:

Biggert-Waters clarifies that a regulated lending institution or its servicer has the statutory authority to charge the borrower for the cost of premiums and fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. Therefore, Biggert- Waters permits a lender or servicer to force place insurance immediately after the borrower’s policy has lapsed or did not provide sufficient coverage. The Agencies’ interpretation seeks to ensure that the protections provided by flood coverage for both the borrower and lender will be continuous. Based on the Federal flood statutes, the final rule clarifies that a regulated lending institution, or a servicer acting on its behalf, may force place flood insurance that would provide coverage anytime during the 45-day notice period and would not have to wait 45 days after providing notice to force place.

And

For example, if a borrower has not renewed a flood insurance policy that expires on June 30, a lender or servicer must provide the 45-day notice to the borrower and may force place a flood insurance policy as early as July 1. The lender or servicer could bill the borrower upon force placing the policy or could wait to bill the borrower at a later date, for example, when the 45-day notice period expires. If the borrower did not obtain a flood insurance policy and the lender or servicer had not force placed insurance by August 14 (the end of 45-day period), the lender or servicer would be required by regulation to force place flood insurance on August 15.

Thank you, NSFW & rlcarey!! We have been sending the letter the day after the policy expires and waiting until the 46th day to force place and charge the borrower. I knew that force placing the day after the policy expired was an option, but wasn't confident in when exactly it was ok to force place (whether that was immediately or after the grace period expired). I don't think we are wrong to continue our procedure, but we are running the risk of being uninsured for at least 15 days.
Thanks for your help!!

If you are force-placing using the NFIP MPPP program, there is a 30-day wait on the new policy as it is not made in conjunction with a new loan so the quicker you act the better. The mortgagee 30- day grace period on the expired policy will cover that gap.

That is exactly why we adjusted our procedures. After all was said and done we had some loans that did not have flood insurance in effect for up to 75 days. It was just to much of a risk for loss.