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#2055284 - 12/22/15 02:57 PM "inadequate" dilemma
Cat Henry Offline
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Joined: Oct 2015
Posts: 24
Once you have determined that the insurance purchased by the customer is inadequate and you are required to force place, (assume customer will not respond to requests to increase coverage and flood insurance is not currently escrowed on the account) do you:

1. purchase a policy that covers the entire required amount as if there were no insurance on the property? or

2. purchase a policy that covers the entire amount with a deductible that equals what the customer currently has? or

3. other options?

Is there authority or a cite that I can use to give guidance in drafting procedures?

Thank you

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Flood Compliance
#2055375 - 12/22/15 07:25 PM Re: "inadequate" dilemma Cat Henry
rlcarey Offline
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Galveston, TX
3. Call the loan as it is in default which Is the one that I would choose if the loan is not protected under 1024.41(f)..
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#2055429 - 12/22/15 10:48 PM Re: "inadequate" dilemma Cat Henry
David Dickinson Offline
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Central City, NE
I'm with Randy especially when you say "customer will not respond to requests". Remind them who's driving this bus!
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#2055435 - 12/22/15 11:24 PM Re: "inadequate" dilemma Cat Henry
Moman Offline
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Posts: 505
WA
I'd think you also need to follow through with the FP insurance as well or face regulatory criticism. We have had to use private insurance in some cases - if inadequate means you are underinsured, and the existing policy is NFIP, you have to go the private route for the additional flood insurance. Based on what I have heard from our insurance providers, 2 NFIP policies on the same property are not allowed. Calling the loan doesn't fully resolve the immediate problem.

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#2055452 - 12/23/15 01:04 PM Re: "inadequate" dilemma Cat Henry
rlcarey Offline
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Galveston, TX
Moman is correct in the short-term.
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#2055511 - 12/23/15 03:35 PM Re: "inadequate" dilemma Moman
Cat Henry Offline
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Joined: Oct 2015
Posts: 24
Assuming that the customer has an NFIP policy that is inadequate or underinsured. In purchasing a private policy, how is the policy written?
1. for the full amount that would be required to cover the property as if there were no insurance? or
2. how? if insurance policies are not cumulative...do you write the second one with the deductible in an amount identical to what the inadequate policy covers?.

Also, can you have 2 private policies on a covered property?

This question has come up in procedure discussions and I would like to be able to reply, "This is what you do in this case....."

Thank you

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#2055556 - 12/23/15 05:43 PM Re: "inadequate" dilemma Cat Henry
Moman Offline
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Joined: Jul 2004
Posts: 505
WA
You would complement the existing NFIP policy with a private policy written in an amount to bridge the amount of shortfall gap. You probably need to verify with your FP insurance carrier on the multiple private policy question; I suspect multiple private policies are OK, but am not sure. The issue is that 2 NFIP policies cannot exist at the same time on the same properties.

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#2068741 - 03/11/16 07:51 PM Re: "inadequate" dilemma Cat Henry
LillyNY Offline
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Joined: Aug 2012
Posts: 48
Central NY
Just came across this thread and have a question about option number 1 listed in the first post of this thread. Are we allowed to do this? I’m thinking this would be overlapping coverage and we’d be overcharging the borrower.

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#2068755 - 03/11/16 08:09 PM Re: "inadequate" dilemma Cat Henry
Norman Paperman Offline
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48.934476, -114.343735
I don't see how you could get away with duplicating the coverage they already have. Yes, the property would be over-insured.

I'm going to catch flak for this, but the option of "calling the loan" just doesn't fly for some compliance officers at some banks. For us community folks, we'll never get management to "call a loan" because flood insurance is inadequate. At the end of the day, it's cheaper and easier to have the compliance department deal with the hassle of forcing a policy than initiating foreclosure proceedings.

With this idea in mind, I've had legal write up a very scary legal document that reiterates the customer's responsibilities.

Hope that helps.

;;prepares to take flak;;
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#2068761 - 03/11/16 08:14 PM Re: "inadequate" dilemma Moman
Dani York, CRCM Offline
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TN
Originally Posted By Moman
You would complement the existing NFIP policy with a private policy written in an amount to bridge the amount of shortfall gap. You probably need to verify with your FP insurance carrier on the multiple private policy question; I suspect multiple private policies are OK, but am not sure. The issue is that 2 NFIP policies cannot exist at the same time on the same properties.


You will need to verify with your FP provider. Ours issues Lloyd's private policies and we had to have a concurrent coverage rider added to our policies to ensure payout in the event that there is another policy in effect (ie a borrower provided policy that isn't high enough or a force-placed policy carried by the 1st mortgagee, etc).
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#2068974 - 03/14/16 06:13 PM Re: "inadequate" dilemma Cat Henry
LillyNY Offline
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Joined: Aug 2012
Posts: 48
Central NY
Thank you both for your responses.

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