The bank has only one borrower that we will need to send the Escrow Option Notice to. This borrower winters in AZ and usually does not return until late spring. Can the bank send the letter now? The loan officer is sure the borrower won't select the option. However, if the borrower would decide for the bank to start escrowing would we need to wait until after January 1, 2016?

If your customer agrees to add escrow, you would not be prevented from adding the flood escrow prior to January 2016.

If the borrower does not wish to escrow at this time, then I do believe you would need to deliver the opt-in escrow notice between January 1st 2016 and June 30, 2016 in order to comply with the timing requirements.

What you ask is a little gray and Jade gives a good opinion about having to send the notice again. I can certain see that too. I would wait until January 1st. You could wait until 6/30/16, but either way, you'll need to offer the option to escrow during that window of time.

Bank XYZ has complied with the law and sent out the Notice to Option of Escrow to Borrower A. Borrower A decides not to escrow. If the borrower decides not to escrow- is the bank stilled required to escrow?

Not on existing loans. However, if you MIRE a loan secured by improved real estate located in a SFHA on or after 1/1/16, you must escrow for flood insurance.

So if borrower A MIRE then escrow would be required assuming that the lender does not qualify for the statutory exceptions. Thanks for your reply.

Correct.

Thanks, David.

If a loan has less than 1 year left to the term as of June 2016, would you still be required to send notice of escrow option?

From my read of the reg, you would have to send the notice no matter what term is left. It does not make much common sense, but there is no exemption that I see. I guess you could take the risk, not send the notice, then just hope if an examiner finds this that they would have common sense and not right it up as a violation.

That brings up all kinds of interesting scenarios. How about, if in Soccer's scenario, the loan has only 3 months left in the term but the flood insurance was renewed 3 months prior. So you collect 2 or 3 months of escrow premium for the flood insurance and then return it to the borrower when the loan pays off?

There are lots of strange scenarios like this. The reg technically says you have to look at the loans on your books as of 1/1/16, but you don't have send the notice out until 6/30/16. It makes no sense to me to send a notice to someone that had a loan payoff between 1/1/16 and 6/30/16, but we had one banker tell us they think they need to. Like Soccer asks - why would you send a notice to someone that has less than a year left, but again, technically it's required. Maybe there will be some common sense added to this before it becomes effective - but don't hold your breath.