Our commercial loan department is entering into a participation loan whose collateral is located in a flood zone. We are not the lead bank. I'm assuming that the lead bank (who is also servicing this loan) owns the flood insurance responsibility but, being this is flood insurance, I don't want to leave anything to chance or make any assumptions.
Would we have any flood insurance responsibility or does the lead bank enjoy all that fun?

Read your participation contract.

Selected info from the 2009 Interagency Questions and Answers... (just search for the word participation to make sure you read all the relevant info in the Q&A.

http://www.fema.gov/media-library-data/20130726-1742-25045-4927/interagency_q_a.pdf

Proposed question and answer 40
explained that, with respect to loan
syndications and participations,
individual participating lenders are
responsible for ensuring compliance
with flood insurance requirements. The
proposed answer further explained that
participating lenders may fulfill this
obligation by performing upfront due
diligence to ensure that the lead lender
or agent has undertaken the necessary
activities to make sure that appropriate
flood insurance is obtained and has
adequate controls to monitor the loan(s)
on an on-going basis.

If a regulated lender is involved in the
making of the underlying loan, but does
not purchase a loan participation or
syndication after the loan has been
made, the flood requirements of the Act
and Regulation would apply to the
lender. The Agencies believe that
lenders who pool or contribute funds
that will be advanced simultaneously to
a borrower as a loan secured by
improved real estate would all be
considered to have ‘‘made’’ the loan
under the Act and Regulation. In such
circumstances, each participating lender
in a loan participation or syndication is
responsible for compliance with the Act
and Regulation. This does not mean that
each participating lender must
separately obtain a flood determination
or monitor whether flood insurance
premiums are paid. Rather, it means
that each participating lender subject to
Federal flood insurance requirements
should perform upfront due diligence to
ensure both that the lead lender or agent
has undertaken the necessary activities
to make sure that the borrower obtains
appropriate flood insurance and that the
lead lender or agent has adequate
controls to monitor the loan(s) on an ongoing
basis for compliance with the
flood insurance requirements. The
participating lender should require as a
condition to the loan-sharing agreement
that the lead lender or agent will
provide participating lenders with
sufficient information on an ongoing
basis to monitor compliance with flood
insurance requirements. A written
representation provided by the lead
lender or syndication agent certifying
that the borrower has obtained
appropriate flood insurance would be
sufficient. Alternatively, the lead lender
or syndication agent could provide
participants and syndication lenders
with a copy of the declaration page or
other proof of insurance. The Agencies
have incorporated minor revisions to
the question and answer to clarify this
guidance.

4. How do the Agencies enforce the
mandatory purchase requirements
under the Act and Regulation when a
lender participates in a loan syndication
or participation?
Answer: As with purchased loans, the
acquisition by a lender of an interest in
a loan either by participation or
syndication after that loan has been
made does not trigger the requirements
of Act or Regulation, such as making a
new flood determination or requiring a
borrower to purchase flood insurance.
Nonetheless, as with purchased loans,
depending upon the circumstances,
safety and soundness considerations
may sometimes necessitate that the
lender undertake due diligence to
protect itself against the risk of flood or
other types of loss.
Lenders who pool or contribute funds
that will be simultaneously advanced to
a borrower or borrowers as a loan
secured by improved real estate would
all be subject to the requirements of Act
or Regulation. Federal flood insurance
requirements would also apply to those
situations where such a group of lenders
decides to extend, renew or increase a
loan. Although the agreement among the
lenders may assign compliance duties to
a lead lender or agent, and include
clauses in which the lead lender or
agent indemnifies participating lenders
against flood losses, each participating
lender remains individually responsible
for ensuring compliance with the Act
and Regulation. Therefore, the Agencies
will examine whether the regulated
institution/participating lender has
performed upfront due diligence to
ensure both that the lead lender or agent
has undertaken the necessary activities
to ensure that the borrower obtains
appropriate flood insurance and that the
lead lender or agent has adequate
controls to monitor the loan(s) on an
ongoing basis for compliance with the
flood insurance requirements. Further,
the Agencies expect the participating
lender to have adequate controls to
monitor the activities of the lead lender
or agent to ensure compliance with
flood insurance requirements over the
term of the loan.